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Denali’s 2021 Turning Points

This free page is dedicated to a long time PUG SMA subscriber (Denali92) who has compiled and analyzed a large amount of good historical data on market turning points as it relates to FOMC (Federal Open Market Committee), Monthly Option Expiration (OPEX), Monthly Non-Farm Payroll (NFP) and Holidays.

JANUARY 2021 Opex Period comments (As of close of business on 11-Jan-2021)

My initial January opex period comment assumed a rally in to opex week, as that has been the predominant opex week occurrence now since November 2016 (Market has rallied in to opex week over 80% of the time since 2016 – before 2016 it rallied in to opex week about 60% of the time).   Monday’s price action has forced me to adjust my comments a bit.

  • The number one point is that since 2013, a close for the SPY above its upper daily bollo heading in to opex week was not bearish, but Monday’s gap down and fall changes that perspective a bit.

Overall, the picture for the market is historically now more MIXED

  • Until Monday’s fall, the history of January opex suggested a continued rally in to late in the opex period or possibly just a rally continuation and no opex turn.  Persistent markets do not always have opex turns – see August 2020 as the latest example.
  • With Monday’s gap down and fall, there are a few instances that might hint that Friday was a more significant high and could produce a multi week pullback in to February.
  • BUT, it should be noted that the April 2020 and June 2020 opex periods started with gap downs on Opex Monday and Monday was then the low for opex week. (which is not what used to occur, but is now becoming a new “normal” when the market is persistent)

After Friday’s close above the upper bollo, Monday’s gap down and fall is a RARE Opex week occurrence!

  • There have been 16 instances since 1998 where SPY closed above its upper daily bollo on the Friday before opex week.
  • Only THREE TIMES has it ever fallen in to opex week (SEP 2005, May 2009 and September 2012)  and only ONCE did it GAP DOWN significantly and not fill the GAP (May 2009).

Here is what occurred in those 3 instances

  • September 2012 was a MAJOR TOP on the Friday before opex week and the market did not bottom until November 2012 opex day, but opex week was a mild pullback.
  • May 2009 was a MAJOR TOP on the Friday before opex week that produced a 13 day 5.2% pullback.
  • September 2005 was a MAJOR TOP on the Friday before opex week that had a very narrow opex week range, but ultimately the market pulled back in to the middle of October

Overall, the 16 instances where the SPY was above the upper daily bollo on the Friday before opex week have a SPLIT HISTORY.

  • In 5 of the 7 instances before 2013, it was bearish with the market heading lower during opex week. (April 2010 was bullish and then the flash crash top occurred shortly afterwards. In Jan 2007, the market was fairly flat and in an up and down range until resolving higher with a low on 26-Jan-07)
  • In the 9 instances since 2013, starting in March 2013 and going through December 2019, it has been bullish with only one MAJOR top (June 2018 – Opex Wed top and a 12 day 3.7% pullback) and FOUR rally continuations. (ie. very bullish still)

Another persistent market period

Overall, the market continues to be persistent, particularly the MID and RUT, which have been persistent since September, a month longer than the SPX and NDX.  When it is persistent, the SPX can stay persistent for up to 9 months (2017).   The 7 persistent markets that started with bottoms in November or earlier have a mixed January history with 3 ending in January and 4 continuing in to at least February.

Bearish – 3

  • January 2010 (from July 2009) post opex top ended the market’s run since July 2009 and the market fell in to early February
  • January 2014 (from October 2013) Tuesday post opex top produced a sharp fall in to early February
  • January 2018 (from August 2017)  rally ended on 26-Jan-18 and there was a PLUNGE to the 200 day MA in early February

Continued rallies -4

  • Rally from August 2010 did not end until February 2011 opex
  • Rally from November 2012 did not end until May 2013
  • November 2016 rally stayed persistent until August 2017
  • October 2019 rally did not end until February 2020 opex

While I am currently doing some more extensive research, I do not have any evidence as to why and when persistent markets end. They just do, at some point in time, when sentiment and technicals overwhelm the “buy the dip” approach. (The FED is also a MAJOR factor – see September 2018 as the most recent instance)

OPEX Period since the March 2020 bottom

Except for the August opex period (rally continuation), opex has actually been the turning point that has consistently produced MAJOR turns in the market (unlike employment, the FOMC and holidays), but there has not been an identifiable pattern.  The primary turns when they have occurred have all been MAJOR. There has always been one and sometimes more than one Opex WEEK turn and the changes in market direction have been far more frequent than normal:

  • April 2020:  Gap down to start the week (Monday was the low for the week) and then a strong rally with a MAJOR TOP on Opex Friday near the close and a MAJOR BOTTOM at the close and an even stronger rally on the Tuesday post opex
  • May 2020: A MAJOR TOP Plunge from the open on Opex Tuesday and a MAJOR Bottom on Opex Thursday near the open
  • June 2020:  A MAJOR Bottom at 9:30am on Opex Monday and a MAJOR TOP on the Tuesday post opex
  • July 2020:  A MAJOR TOP above the upper daily bollo on Opex Monday and a MAJOR  Bottom at the 20 day MA on Opex Tuesday
  • August 2020: Rally continuation
  • September 2020:  MAJOR TOP at 20 day MA on Opex Wednesday
  • October 2020:  MAJOR TOP above upper daily bollo near the close on Opex Monday
  • November 2020: Minor top near the close on Opex Monday and a MAJOR Bottom near the open on opex Thursday
  • December 2020: Minor top at the close on Opex Friday and a MAJOR Bottom at 10:30am on Monday post Opex.

Mondays have been a key day more than usual in 2020 and early 2021 so far with quite a few significant events occurring on Mondays:

  • Notable Bottoms: March post opex bottom, both June pullback bottoms, December post opex bottom, most recently, the January 3rd bottom
  • Many Gap Up and Go higher Mondays:   Post Vaccine news in November and numerous other instances like post May opex
  • Tops:   October opex Monday top is the most notable one. The July opex Monday top was good for a 3.5% pullback, the November Opex Monday top was a bit less.

JANUARY Opex History:  Mixed history for turns – no strong edge

When there is a January opex turn, they can be significant – most of them are post opex or late in the opex period.   BUT, it should be noted that there have also been a lot of rally continuations.

  • MAJOR Bottoms: 2005 (Monday post), 2008 (Tuesday post), 2009 (Tuesday post), 2015 (Opex Friday) and 2016 (Wednesday post)
  • MAJOR Tops:  2003 (Opex Monday), 2010 (Tuesday post), 2014 (Tuesday post)
  • Rally Continuations:  2004, 2012, 2013, 2018 (but then MAJOR top – 1 week later)

Quite a few traditional technical indicators like the upper Bollinger bands suggest a correction should be near:

  • SPX – 3 months above the upper monthly bollo
  • RUT – 3 months above upper monthly bollo, 7 closes in a row above the weekly upper bollo ending in December and also traded above, but did not close above the upper weekly bollo last week. 
    • Also, highest weekly RSI (9) at 81.5  since April 2010 83 reading the week before the April 2010 top
    • RUT Forward PE is also estimated to be above 80.
  • Plus, the Cobra stats about distance to the 200 day MA, etc…

BUT, as the market has proven over the years, only price matters and it can remain stronger and more persistent for far longer than people could predict or possibly expect it to.  

Bottom Line:

Monday’s gap down after Friday’s close above the upper daily bollo band has sent another warning signal to the market, but until there is downside confirmation with multiple consecutive down days and also follow through lower after a BIG down day (greater than 1% drop), one must expect the market will continue to rally and will remain persistent for at least a while longer, if not quite a lot longer.

It may not make a lot of sense to most market historians, technical analysts or value oriented investors, but until there is an actual sell off that turns market sentiment, the path of least resistance is higher. This is simply the way the market operates when it is in a persistent state.

The message from market history is definitely mixed. Persistent markets MUST BE respected, but it should also be noted that of the 15 persistent market periods since 2009:

  • 7 ended during the opex period,
  • 3 ended during the very beginning of the month (eg 1-May-19, 2-Sep-20),
  • 3 ended post the employment report
  • 2 ended on the 26th of the month (April 2010 and Jan 2018)

For now, PUG has a great feel for the market and his levels and perspective are a very good guide for how to proceed.

-D

Detail info:

FRIDAY BEFORE Opex week – SPY closed above upper daily bollo –

  1. 14-Jul-00  – MAJOR TOP on OPEX MONDAY and a sharp 11 day fall to below the lower daily bollo
  2. 9-Sep-05      MAJOR TOP on Friday before opex week and a fall in to Mid October.
  3. 12-Jan-07  minor bottom on Monday post opex
  4. 8-May-09   MAJOR TOP on Friday before opex week and a 18 day fall
  5. 9-Apr-10   Market moved between upper bollo and 20 day MA until peaking on 26-Apr-2010 and then fell till well below the 200 day MA after the FLASH CRASH in May
  6. 14-Jan-11   minor bottom on Opex Thursday at 20 day MA – market then continued higher until a sharp one day plunge on 28-Jan-11
  7. 14-Sep-12  MAJOR TOP on Friday before opex week and a mild fall till November opex day.
  8. 8-Mar-13  minor top on Opex Thursday and a brief pullback to 20 day MA
  9. 13-Feb-15  minor top on Wednesday post opex – then did fall below the lower daily bollo in March
  10. 9-Dec-16               minor top on Opex Tuesday  – the market then stalled and fell until making a bottom on the last day of the year below the 20 day MA
  11. 10-Feb-17    Rally continuation
  12. 14-Jul-17        Rally continuation 
  13. 12-Jan-18      Rally continuation  – this was part of the SUPER strong rally that peaked on 26-Jan-18 and then the VIX exploded and the market collapsed to the 200 day MA in early Feb.
  14. 11-May-18   minor top Tuesday post opex
  15. 8-Jun-18     TOP on Opex Wednesday and 3.7% fall to just below the lower bollo
  16. 13-Dec-19    Rally continuation
 
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