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Denali’s Turning Points 2016

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.

 

Year End Holiday Turning Point preview for December 2016 (as of close of business on, December 22nd 2016):

I am primarily publishing this as the Christmas / New Year’s holidays have produced major top turns in the last two years, as well as MAJOR turns in 2007 (top), 2008 (bottom) and 2012 (bottom), so it is good information to be aware of going in to next week – if one is trading.

The market price action continues to be different than any election year I have analysed since 1976, as well as any November – December period since 1998. The opex week / FOMC price action was particularly rare, as there had only been 1 opex week since 1998 (227 opex weeks) that had a Tuesday high and a Wednesday low.

  • In December 2011, the market was falling from the 200 day MA and bottomed on the Monday post opex 7pts below the Wednesday low and then the market embarked on its strong Q1 rally

That year’s price action is clearly not applicable here.

For now, that leaves last Tuesday’s high of 2277.5 and last Wednesday’s low of 2248 as the key levels, particularly for determining whether the market is in a fall in to the end of year holiday phase or whether it will rally in to year end or whether it has defined a trading range that will exist through the end of the year.

Given the market’s technical condition and the lack of historical precedents, I will simply state that there is no guarantee of either a “Santa rally” or a “Scrooge fall” that was last experienced in Dec 2012 (opex Wed top) and which ended with a GREAT buying opportunity at the 200 day MA on Dec 31st that year.

I did note in my Quad Opex Preview that there were 4 Decembers that did not have a December pullback and other than Dec 2010 (which had a weak 2nd half of November), the other three (2004, 2005 & 2006) all corrected to a fairly flat and narrow lower Bollinger band before rallying.

  • 2004: (Election year) The market was very strong from 25-Oct through the election until stalling out on Wed, Nov 17th – the market then kept higher in an upward sloped trading range alternating between the 20 day MA and the upper bollo before topping on Monday, 3-Jan-05 and falling till 24-Jan-05. The correction ended a bit below the 80 day MA
  • 2005 – The market topped on opex Wednesday and fell to the lower bollo band and a bit below the 40 day MA before rallying strongly from Jan 3rd till Jan 11th
  • 2006 Market peaked on the Monday post opex. Bounced from the 20 day MA on the day after Christmas for two days and then fell till the lower bollo on Jan 3rd and just stalled until the rally was re-ignited on Jan 10th

For now, the market feels like it is in a “No Man’s land.” The persistence of the November – December rally and the failure to release some market pressure with a proper (more than one day pullback) does leave the bulls at slightly higher risk of being disappointed in the coming weeks and possibly in January.

While there are no more high probability turning points ahead of the market until January opex, one should be aware that since 1998, there has been an end of year / start of year holiday turn in 14 of the last 18 years. In most years since 1998, the turn has occurred either side of the New Year’s holiday, BUT that has started to change in recent years, particularly as in both 2014 and 2015 the market MAJOR topped on Dec 29th.

Here is the summary of when the end of year holiday turns have occurred:

Christmas Turns   (4)

  1. 2015 – MAJOR TOP 2 days after Christmas on the 29th
  2. 2014 – MAJOR Top 2 days after Christmas on the 29th
  3. 2008 – MAJOR Bottom 2 days after on the 29th and a rally till Jan 5th
  4. 2007 . MAJOR Top on the day after (the 26th) near the close and fell till 22-Jan

New Year’s Turns   (10)

  1. 2013: minor Top at the close on the 31st and a fall till the 6th.
  2. 2012: MAJOR Bottom at the open on the 31st and the start of a persistent rally
  3. 2009: minor bottom at the close on the 31st after a short pullback
  4. 2005:   Bottomed on the first trading day of 2006 near the open and rallied to new highs till Jan 11th
  5. 2004: Market topped on the first trading day of 2005 and fell till Jan 24th
  6. 2002:   Bottomed on New Year’s Eve and rallied in to Jan opex week
  7. 2001:   minor top two days before (28th) and a bottom on the first trading day (the 2nd) and a rally till Jan 4th before rolling over
  8. 2000: Very volatile – Top on last trading day (the 29th) and bottom on 2nd trading day (Jan 3rd) and another top on the 4th after a 76pt rally
  9. 1999: MAJOR Topped on first trading day (Jan 3rd) of 2000 and fell 100pts in 2 days before re-testing the highs and falling away again
  10. 1998: minor pullback from the 30th until Monday, the 4th and then rallied to new highs until Friday, the 8th before falling in to a 2 month trading range.

No Turns (4   – 3 rally continuations and 1 fall continuation)

  1. 2011 – minor two day pullback during a strong rally
  2. 2010 – No turns just a slow motion rally until end of January
  3. 2006 – minor two day rally amidst a fall that did not end until Jan 10th
  4. 2003 – persistent rally with no turns

Bottom Line:

There is no turning point edge right now and the failure for the market to have a more than one day opex inspired pullback continues the unprecedented nature of this 2016 post election rally and increases the risk to long positions.

For now, the best advice is to go on holiday, but if one must trade or wants to position themselves for the potential (14 out of 18 years) holiday turning point which has been occurring since 2007 between the 26th and 31st, then the following seems like sensible scenarios:

  • If the market does build upon the weakness seen in the last two days, it could set up a buying opportunity at key levels below 2248 for a renewal of the rally
  • If the market rallies up to new highs next week or in early Jan, it could set itself up for a more significant pullback like occurred in 2014 & 2015
  • If the market just sits in the 2248 to 2277 range, then it is probably best to focus on other things like reading a book or one’s family!

ENJOY the HOLIDAYS!

-D

 

QUAD Opex / POST FOMC preview for December 2016  (as of close of business on Friday, December 9th, 2016 ):

As everyone well knows, the market is showing incredibly persistent strength. The MID and RUT have seen the strongest, most persistent price action that I have seen since 2007 and most likely since well before that (I just do not have the 10 min or hourly stats to back up that assertion). Most of my trader friendly short term OB measures have been completely blown away by the strength of this move since Nov 4th.

I am not doubting the strength – I am just amazed that 7 years in to this bull run, we are even stronger than we were during the super strong periods of spring 2010 and H1 2013.   We are now near the seasonally strong period, which this year should start later during the opex period or post opex, but for it to occur, the market probably needs to cool off somewhat.

The reason I state that is that unless there is a pullback fairly soon, the market is at the risk of a more sustained opex top. The usual December pattern has strength in to and through the employment report then some weakness pre opex and then an opex week pullback and then a continued rally. There have just been 4 years since 1998 that saw rally continuations during the week post employment. 2010 is the year that Bulls are hoping to replicate – though that year really did have a weak 2nd half of November (which definitely did not occur in 2016!)

  • 2010 – had a weak second half of November that produced the late November / early December buying opportunity on Tuesday, November 30th below the 40 day MA. Market then had a Tuesday to Thursday opex week pullback before continuing the rally until mid Feb 2011. 2010 is the only year since 1998 that did not see the SPX touch its 20 day MA during the month of December
  • 2006: The early low was on Tuesday, Nov 28th which came a bit below the 20 day MA. The market then ran higher just underneath the upper bollo band before peaking at the open on the Monday post opex. This marked the high for the month and the market was lackluster until the rally resumed on 10-Jan-07 when it got OS at a very flat lower daily bollo
  • 2005 – the early low was just a brief drop 3 day drop that did not even get to the 20 day MA. Market had limited strength but still pushed higher until topping on Opex Wednesday and then falling to the low of the month on the last trading day of the month – the market then pushed on to new highs until 11-Jan-06
  • 2004: (Election year) The market was very strong from 25-Oct through the election until stalling out on Wed, Nov 17th – the market then kept higher in an upward sloped trading range alternating between the 20 day MA and the upper bollo before topping on Monday, 3-Jan-05 and falling till 24-Jan-05

FOMC – expected to raise rates – will it matter?

  • Last year, the FED raised rates during December opex week. The market had rallied strongly since midday on Opex Monday and it continued rallying until the open on Opex Thursday. The market then fell 76pts till the close of opex Friday before rallying till the December 29th top.
  • Other than that data point, there really is no useful historical information.
  • Given how Dec 2015 opex week / FOMC rate rise played out, the best advice I can provide is – “Expect the unexpected”

DECEMBER Opex period – generally has produced good buying opportunities.

  • The December opex detail is in the research section below. Four of the last five years (2011, 2013, 2014 & 2015) have produced excellent buying opportunities for the rally in to the holiday period.
  • 2012 was the one outlier with the fiscal cliff “drama”.

Start of the rally in to the holiday period

  • There have been 5 falls in to the year end holiday period (most recently 2012 and 2008) and 13 rallies since 1998.
  • The data on the start date for the year end rallies and falls is in the detailed research section.
  • Per the note above, other than 2010, the more the SPX strength persists, the higher the probability of a weaker second half of the month.

Current Conditions

The market is strong – super strong.(SPX / SPY daily RSI (9) at 83)

  • If it continues with this level of strength through Tuesday, it will be the strongest it has been since 2007 before an FOMC meeting. Generally, a pullback post FED has occurred, but it is not a certainty.
  • In the detailed research section, I take a look a brief look at breaches of the upper weekly bollo band for the SPX during the opex period (No edge) and the daily upper bollo band as well (used to be an edge of some sort, but has not been seen in 2016)

Bottom Line

Overall, from a historical perspective and from my turning point work, the market is in fairly unexplored territory. The persistent bull definitely returned in March of this year after its November 2015 through February 2016 struggles.

  • For the bulls, while the market is super strong, it would benefit from a pullback to allow it to reset technically as well as better set up for the historically confirmed rally (13 of last 18 years) in to the holiday period which usually starts during the opex period – though in 2011 and 2000, it did not start until post opex.
  • For the bears, continued market persistence could be beneficial as the longer the market stays OB, there is some historical evidence that the market pulls back more significantly, but it is not a strong edge, particularly not in December.
  • Overall, the current market rally is 5 weeks long. As has been seen repeatedly during the bull market, the bullish periods have persisted for a minimum of 5 to 6 weeks (see late Sept to early Nov 2015) to 3 or more months before usually encountering a sharp pullback of some sort. In summer 2016, the rally lasted from late June to early September before that quick 69pt pullback occurred and then the market struggled till early November. In the spring of 2010 period the super persistent rally was from Feb employment until the late April FOMC – almost 3 months – and then the market struggled for 4 months in a period that included the flash crash.

In general, my historical work and studies have been of only some use when the market has gotten super, persistently bullish or does not follow the normal historical pattern. For every instance that I can show a bearish outcome, I can also generally highlight a time where the market’s bullish character persisted. For me, that means I will be fairly quiet with my commentary and will just point out historical extremes and historical similarities, as my work provides LIMITED edge right now.   The last time my turning point work really showed a confirmed edge – albeit a risky one – was before the November employment report.

Historically, in the context of the market since 2009, the market really is in an impressively persistent bullish period.

Ever interesting,

-D

Detailed Research

Current Conditions (as of close of business on Friday, December 9th)

The SPX is definitely extended being above the daily and weekly upper bollo bands and right at the monthly upper bollo band.   (see comments below)

The SPX / SPY daily RSI of 83 is HIGH. If it stays at this level through Tuesday, it will be the highest since 2007 before an FOMC meeting.

  • There have been 10 FOMC meetings since 2007 that have seen daily RSI levels above 70 before the meeting. All but one of them (the highest reading in January 2013) saw pullbacks POST the Fed, but only three of those tops were MAJOR (Nov-10 – 2 days after, Sept 12 – 1 day after and Sep 13 – 1 day after) The one in January 2013 with a daily RSI reading of 81, saw a rally continuation.

SPECIAL RESEARCH

SPX closing above upper weekly Bollo the week before opex or trading above the upper weekly bollo during opex – NO EDGE for the opex period

The SPX closed the week before opex week above the upper bollo band or traded above the upper bollo during opex week is a reasonably rare technical condition as it has happened 19 times since 1998.   This is the second time in 2016. There was no impact in July when it last occurred.

While the daily bollo band breach seems to have some significance at times, the weekly bollo band breach appears to have a lot less impact. While there are a few notable MAJOR Tops, the stats do not indicate any significant risks to the market from this one technical indicator, as 7 out of 19 times, the market rally continued.

This is generally the case with upper weekly bollo band breaches. It can have an impact, but there is no strong historical correlation between MAJOR tops shortly after a weekly bollo band breach.

Note: It has never occurred since 1998 for a December Quad opex week

19 instances since 1998

  • NO Impact – 7 instances   (most recent July 16)
    • Jul 16, Oct 10, March 10 (Q), Apr 07, Jan 04, Mar 98 (Q), Feb 98
  • Limited Impact – 5 instances   (most recent Nov 13)
    • Nov 13, Apr 10, Oct 06, Nov 04, Oct 03
  • MAJOR TOP – 4 instances – but not long lasting (most recent Sep 13)
    • Sep 13 (Q), May 13, Jun 03 (Q), Apr 99
  • Significant MAJOR Top – 3 instances (most recent Sept 12 (Q)
    • Sep 12 (Q), Jul 99 & Jul 98

Q denotes a Quad opex week

This is consistent with a weekly bollo band breach study that I did for the RUT. Since 1998, only 32% (9 of 28) of weekly breaches of the upper bollo led to a significant weekly correction. (Note 46% 13 out of 28 did yield a decent signal for a daily correction)

DAILY Upper BOLLO Band breaches –

On a daily basis for the opex period, the SPX does show a slightly greater tendency to pull back – some times quite significantly, but again, the recent instances – Aug 2016, July 2016 and April 2016 have not provided a shorting edge as the markets continued higher for some time.

On a daily basis, a RUT daily upper bollo breach did show some edge for at least a short term market top (as last seen in September 16 and also for the last SIGNIFICANT TOP in June 2016), but 5 of the last 6 instances did not produce a daily correction of any significance. The only recent instance of a top was Sept 16.

Bottom Line: Upper daily bollo breaches used to provide some edge to the bears, but that has not been the case with any consistency in 2016

MID and RUT – what an impressive and persistent move

  • After such an extended advance, last week was a truly impressive performance by the MID and the RUT
  • Since the election, the MID on an hourly basis has been the strongest it has been since 2009! For the second time in less than a month, it was hourly OB for 27 hourly bars. The median number of bars for the MID being hourly OB is just 3! So to have hourly sell signals last 27 bars twice in less than a month is quite something.
  • The MID was similarly strong in June / July, post the Brexit sell off. (18 bar and 21 bar signals). I made the comment in November, that IN GENERAL these extended signals tended to re-trace significantly – though not always. That was clearly not the case after the extended signal in November, but the median pullback when the MID goes on an extended OB hourly sell signal run (greater than 12 bars) is 90% of the advance from the signal. In late November, the re-trace was the smallest ever just 11% of the 3.1% advance.

DECEMBER Opex Detail

    1. Dec 2007: Opex Tuesday MAJOR BOTTOM and then MAJOR top on the day after Christmas
    2. Dec 2008: BOTH a MAJOR TOP (Opex Wednesday) and MAJOR BOTTOM (Monday after bottom), had an opex Monday low and a 60 plus point bounce in to Wednesday and then a SHARP fall in to a Major Bottom on the Monday after opex
    3. Dec 2009: Major Bottom on Opex day – Market rallied in to the Wed of opex week and then fell in to opex day, which was the last low until the market stalled and rolled over in mid Jan.
    4. Dec 2010: Minor correction from Fed Day Tuesday top in to a Thursday at the open low and that was the last low for a LONG time until the market peaked at FEB opex DAY!
    5. Dec 2011: MAJOR BOTTOM on Monday post opex – Tues high for the week (though SPX was correcting from the previous week already) and then down in to just Wednesday… Market bounced in to opex Friday, but then fell hard on the Monday after opex and that was THE LAST TIME the SPX saw 1200!
    6. Dec 2012 – MAJOR TOP on the Wed / Thurs and a MASSIVE O/N move lower on Thursday night / opex Friday morning before market bottomed a week later on the Friday post opex in the after hours thanks to the FISCAL Cliff
    7. Dec 2013: MAJOR Bottom on Opex Wednesday – A fast and furious one minute spike down to new lows for the month created a bottom and the market was off higher until the end of the year
    8. 2014 – MAJOR BOTTOM on Opex Tuesday – day before FOMC – After an employment day top, the market started to sell off. Sell off accelerated on Friday before opex with a close below lower bollo band – opex Monday and Tuesday were both volatile with closes below the lower bollo band – but the final low was at the close on Tuesday pre FOMC. The market then reversed higher and took off until late December.
    9. 2015 – Volatile – MAJOR bottom and bounce from below lower bollo on Opex Monday – ended early on the day after Fed (Thurs) and market fell hard for two days. Made a higher low at the close on opex Friday and rallied till post xmas top

(Note: 2007 and 2012 were the only years when the FOMC meeting occurred the week before opex week. All of the meetings except for 2010 & 2011 were two day meetings with a Wednesday announcement)

START of Rally in to the holiday period

  1. 2015 – Opex Friday (till 29th)
  2. 2014 – Opex Tuesday (till 29th)
  3. 2013 – Opex Wed (till 31st)
  4. 2011 – Mon Post opex
  5. 2010 – Opex Thurs
  6. 2009 – Opex Friday
  7. 2007 – Opex Tues
  8. 2004 – Mon post opex
  9. 2003 – Wed, the 10th
  10. 2001: Friday, Dec 14th (ended on 28th)
  11. 2000 – Thursday post opex, Dec 21st
  12. 1999 – Opex Wed, the 15th (till Dec 30th)
  13. 1998 – Opex Monday, the 14th (ended on 30th)

Start of December Fall in to the holiday period

  1. 2012 – Opex Wed (ended on 31st)
  2. 2008 – Opex Wed (ended on 29th)
  3. 2006 – Monday post Opex (ended on 26th)
  4. 2005 – Opex Wednesday (ended on 3-Jan)
  5. 2002 Opex, Tuesday, the 17th (ended on 31-Dec

 

December 2016 Turning Point Preview with employment notes (as of close of business on Wednesday, November 30th):

The following is my monthly turning point preview that touches on important and interesting historical information about the upcoming month.

December – more than any other month has an extremely distinct pattern that it generally (though not always) follows. Here is the December pattern:

  • Early December or late November low (did not happen in 2015 or 2016)
  • Rally in to employment – generally ending post employment (was just a 42pt one day bounce in 2015)
  • Pull back for a few days generally ending on the Thursday or Friday before opex (pulled back to opex Monday in 2015 & Opex Tuesday in 2014)
  • Rally in to opex
  • The opex period can then be a high or more usually a double turn with a high and a low (In 2015, there were Monday & Friday lows and a Thursday high)
  • Rally in to year end or at least post Christmas (Topped significantly on the 29th in both 2014 & 2015)

I have included a lot more detail below.

The last three years has seen a slight change to this pattern – the reason for this is that ALL three years (2013, 2014 & 2015) saw RALLIES in to the end of November. This is not something that has normally happened. In fact from 2007 to 2012, the month of November provided good mid to late month buying opportunities. This did not happen in 2013, 2014 or 2015 (or now this year):

  • 2013: Rally ended on Friday, Nov 29th and 3 wave fall till opex Wed, Dec 18th (FOMC day)
  • 2014: One day fall on Dec 1st and then rally finally ended on Friday, Dec 5th and there was a SHARP fall till opex Tuesday, Dec 16th before rallying till Dec 29th.
  • 2015: Market peaked on Wed, Dec 2nd (pre ECB) and despite a 42pt bounce on employment day, fell sharply till opex Monday, Dec 14th, bounced for three days before re-testing the lows on Opex Friday, Dec 18th and rallying in to the 29th of Dec.

One other interesting point to note about all three of these November rally years is that there was a peak in the last week of the year and an unexpected fall in to the New Year.

It does not always happen – but as many aspects of this pattern have occurred in most of the last 18 years (at least 13 times for each step), it is a pattern worth noting.

In addition to the above pattern, here are the December highlights:

Employment

  • Employment tops have occurred every year since 2007 – Except for 2010 (rally continuation. (details are below) and a bottom and a top in 2008.
  • There has only been one December employment bottom since 2007 – it was a brief 101 pt rally from Employment day to the Monday after in 2008
  • Only outlier to note is that 4 times since 1998 the market has made a Wednesday before employment high and fallen in to employment (though in 2015 – the market then had a one day 42pt rally on the employment report in to a lower high)
  • As of Wednesday’s close, the SPY is daily MFI (OB). There have been 10 employment reports out of the last 119 that have seen the SPY with an MFI (14) reading of 75 or higher. The result has been: 2 major tops (Jul 11 & Jun 07), 5 minor tops, 2 rally continuations (latest Nov 14) and a rather odd bottom post employment in Sept 2007. The 7 tops mostly occurred on employment day with just one on the Thursday before and one on the Monday after

FOMC during Opex week

    • December opex is slightly different than the other three Quad opex weeks (Mar, Jun & Sept). Somewhat unexpectedly for the normally hyper bullish Santa rally pundits, December opex has produced pullbacks and major bottoms in almost every year (2012’s fiscal cliff drama was the one exception as the pullback lasted till New Year’s Eve) so it is one to watch.
  • In December 2015. Market declined from employment day until Opex Monday and then a sharp bounce to Opex Thursday (day post FOMC) and another sharp fall to a higher low on Opex Day (it was volatile!)
  • In December 2014, Market declined from the employment day until opex Tuesday, the day before the FOMC.
  • In 2013, there was a spike down low for the month and a major bottom on opex Wednesday (FOMC day)

Rally in to Year end

It is true that this rally does occur. It has occurred in 13 of the last 15 years. The last time it did not occur was in 2012. The latest start for the rally since 2007 was the Monday post opex in 2011. (details for every year since 1998 are below)

Holidays

With the exception of the government shenanigans during 2012 (and 2008), it is true that the market almost always rally in to the Christmas holiday. After the rally in to the holiday, there is almost always a turn at one of the two holidays. Generally that turn is associated with the New Year’s holiday, but in 2007, 2014 and 2015, the market major topped post Christmas and declined rather significantly.

OTHER Points to Note:

Election year pattern – per previous notes, this is only the 4th year since 1976 that the market has rallied through the election period. In 1980 and 1996, the market peaked on Nov 26th and fell. In 2004, the market rally continued until early January.

  • In 1996, the market fell 6% from Nov 26th until Tuesday, Dec 17th and then rallied in to the end of the year. The December pullback retraced about 70% of the election rally
  • The Top in 1980 was more significant. After a 13% election rally, the entire rally was retraced from Nov 26th until Thursday, Dec 11th. The market then rallied to test the Nov 26th high on Tuesday, Jan 6th (lower high) before falling away in to the 1981-82 bear market.

November high for the year – December high for the year?

  • The high for the year has been made in November 8 times since 1948 compared to 25 times in December, BUT, a few of the notable years where the November high has been the high for the year have been election years – notably – 1996, 1984, 1980, 1968 & 1964.

As noted in the Thanksgiving preview, The RUT, this year, just like in 2013, 2014 & 2015 displayed significant strength at the end of November. This has started to unwind already. In general, the RUT should continue to underperform the SPX until at least the middle of the month.

Bottom Line

With the SPX making a new all time high yesterday and the RUT already pulling back from its all time high from last Friday, there are a few market divergences to be aware of and that suggestion caution for the bulls until the middle of next week to as late as the middle of opex week:

  • The December pattern is clear and historically well supported. 2016 seems to be following the pattern of the last three years, all of which have resulted in excellent opex week buying opportunities, which is slightly later than the usual December “rally in to opex lows”
  • The employment report in December almost always produces tops with a few rally continuations, but the lack of a mid to late November buying opportunity should mean that the SPX does have a top of some sort in the next few days (if it was not on Wed, the 30th). The SPY MFI (14) reading above 75 also suggests a top of some sort.
  • The so called “Santa rally” does exist. The best time to get involved on the long side for it has been during opex week – though it did not occur in 2008 or 2012 and the low did not occur until the Monday post opex in 2011.
  • Additionally, in the current conditions section below there are a few technical points that do suggest caution is warranted for the bulls until the middle of the month.

Overall, history suggests being cautious for the next week or two and that the best setups for the bulls will present themselves later in the month.

Ever interesting,

-D

Current Conditions

SPY, MDY & IWM all ended the month still MFI (14) daily OB. The pullback on the last day of the month did reduce the SPY’s daily RSI (9) to 65 and MFI (14) to 76. Daily MFI readings above 75 are not a sell signal, but they are a potential warning sign.

They are more of a warning sign in the MDY and the last two instances in June and April 16 did warn of major tops. My MDY MFI OB stats go back to 2007 (41 instances). MDY has never been daily MFI OB at the end of November before. It did get MFI OB early last December and immediately topped and fell in to December opex Monday.

There are a number of other things to highlight

  • 10 Minute Buy Signal Study – This was published previously and noted that in 10 of 17 instances when there has been a MID buy signal drought of at least 13 days, the market had started fairly immediately big drops (last in April and June 2016). In 5 of the instances, the market kept going higher (last in July 16) – just something to be aware of.
    • The RUT had two Weekly candlesticks that were almost entirely outside of the upper bollo band at the end of November – this is extremely unusual. It really has never happened to the extreme that was seen in the last two weeks. Here are the other instances that I could find
  • 8 July 13 start week – Market was close to this condition and it stayed high until employment day in August and then the market declined for the month of August
  • 12-Jan-04 start week – Market topped at the end of January and stalled out. While a slightly higher high was made in April, the market did not finally bottom until August 2004. One significant difference to the current period is that the RUT had been consistently rallying since Q1 2003 as the bear market had ended
  • 28-Feb-00 – The RUT topped the following week and fell to the lower weekly bollo by mid April
  • Additionally, the RUT just had the most extreme daily move after breaching the upper daily bollo before bands before topping (5.1%) since 2007. The previous extreme had been July 2011 at 4.0% which was also the end of the summer rally in 2011. The 3.1% rally in May – June 2016 saw a 3.1% additional rally. The RUT then fell 4.8% in to June opex.
  • The failure to pullback at the end of November / in to early December (the minor down day on Monday does not count as it was too small) is RARE. The only previous years since 1998 were 2002 and 2015. In 2002, the market pulled back until opex Wednesday in November and then rallied until hitting the upper bollo on Monday, December 2nd. The market then slowly slid lower the rest of the month until Dec 31st. In 2015, the market hit the high for the month on Wednesday, Dec 2nd and fell sharply until opex Monday, Dec 14th. (149pt drop)
  • This Thanksgiving holiday was only the third time since 1998 where there was no immediate turn around the holiday. The other two instances were 2003 and 2015. Both topped on the Wednesday, post the holiday and fell (2003 mildly for a week and 2015 sharply for 11 days – though there was a 42pt bounce on employment day)

DECEMBER Pattern Details

December – more than any other month has an extremely distinct pattern that it generally (though not always) follows. That pattern is as follows:

Early December or late November low (did not happen this year or last year)

  • 16 times since 1998. Latest low was Thursday before employment in a number of years
  • 2015 had a Wednesday (high for the month), a Thursday low and a 42 pt bounce on the Friday

Rally in to employment – generally ending post employment

  • Rally in to employment ended as early as employment day (2015, 2014, 2009 & 1999)
  • But also as late as Opex Tues (2010) and Opex Wed (2004 & 2005) and Mon post opex (2006)
  • Here is when the rally ended in recent years: Mon post employment (2008 and 2013), Tues post (2007) and Wed post (2011 & 2012)
  • There was just a 42pt one day bounce in 2015

Pull back for a few days generally ending on the Thursday or Friday before opex

  • There have been rally continuations in to opex – 2004, 2005, 2006 & 2010
  • Rallies started on Friday before opex in 2008 & 2012
  • Wed before opex in 2009 and Thursday before in 2013
  • pulled back to opex Monday in 2015 & Opex Tuesday in 2014

Rally in to opex

  • 13 out of 15 years there have been rallies in to December opex
  • BUT 4 years since 2007 have seen falls: 2007, 2011, 2014 & 2015
  • The other year was 1998

The opex period can then be a high or more usually a double turn with a high and a low

  • In 2015, there were Monday & Friday lows and a Wednesday high

Rally in to year end or at least post Christmas (the so called SANTA RALLY)

  • Has occurred in 13 of the last 18 years
  • 2015 – Opex Friday (till 29th)
  • 2014 – Opex Tuesday (till 29th)
  • 2013 – Opex Wed (till 31st)
  • 2011 – Mon Post opex
  • 2010 – Opex Thurs
  • 2009 – Opex Friday
  • 2007 – Opex Tues
  • 2004 – Mon post opex
  • 2003 – Wed, the 10th
  • 2001: Friday, Dec 14th (ended on 28th)
  • 2000 – Thursday post opex, Dec 21st
  • 1999 – Opex Wed, the 15th (till Dec 30th)
  • 1998 – Opex Monday, the 14th (ended on 30th)
  • NOTE: the market topped significantly on the 29th in both 2014 & 2015

 

Thanksgiving Holiday Turning Point Preview for Nov 2016  (as of 2pm on Wednesday, November 23rd , 2016 ):

Thanksgiving has generally been an excellent turning point for many years. The only year since 2007 that did not have a noticeable turn was in 2012 after the opex day bottom and sharp rally. Last year’s turn was slightly delayed as there was great market excitement about the ECB meeting on Thursday, Dec 3rd. The market topped for the month of December on the open on Wednesday, December 2nd, which is slightly later than a normal holiday turn.

One thing to be aware of is December is The ONE MONTH that most consistently has had an early month low (or late in November low) and a rally in to, at least, the employment report – it has occurred 15 of the last 18 years. Though last year’s rally was actually a SHARP 40pt rally on employment day and then the market fell away again.

ELECTION Pattern

This year is now the 4th year out of the last 11 election years where there has been a substantial rally after the election. In the other 3 election years,

  • the rally in 2004 continued until early January. The SPX rallied a total of 11.7%
  • the rally in 1980 ended on Wednesday, November 26th (the day before Thanksgiving) and a bear market started. The rally in 1980 was 13.3%
  • in 1996, the rally ended on Tuesday, November 26th (two days before Thanksgiving) and the market pulled back 6% until opex Tuesday, Dec 17th. The election rally was 9.5%

The RUT has rallied over 15.5% since employment day, so it is approaching those levels, but the SPX with a 5.7% rally still has a ways to go to reach the level of the previous election rallies

Points to be aware of

  • The RUT rally in particular has been extreme. After breaching the upper weekly bollo band last week by 21pts, it has spent the entire week above the upper bollo band. Back to 1997, I could not find a single instance of this technical situation.
  • In relation to the SPX, the MID and RUT have rallied much more significantly in the last two weeks and the current rate of spread change is unsustainable. On a relative basis, the SPX should do better starting next week. This is consistent with the seasonal pattern that has been noticeable in the last few years of RUT outperformance through Thanksgiving and then underfperformance until at least mid December. .
  • The absolute number and rate of failure of the MID hourly sell signals for an opex period is significant. The last two times there have been four consecutive hourly sell signal failures during an opex period was in April 2016 and November 2015. The market major topped shortly thereafter in both instances.
  • There has not been an MDY 10 minute buy signal in at least 14 days. I last published this study in April. The study concluded that there was a higher than average possibility of a big drops ahead. (9 times in 15 instances) There was a big drop in April, as the study coincided with the April top. There was also the June top (after 22 days without a signal) BUT the same signal on July 21st (after 16 days) did not yield any significant move as the market remained range bound. It is another warning sign, but nothing more than that.
  • *** What is amazing and for another post is that these periods without a 10 minute buy signal have been much more regular in 2016. I guess that means the persistent bull is something that still needs to be respected. I do wonder whether it has something to do with the algos that are out there.
  • Just something to be aware of – the SPX has had trouble with the milestone levels – not always right away, but for some reason It is only able to get a bit over the major milestone levels and then it struggles.
    1. In 2014 it was the battle for 2000, which ended at 2019 during Sept opex
    2. In 2015, the battle at 2100 got as high as 2120 in Feb and then 2135 in March before pulling back
    3. For 2016, it could be the repeated tests in the lows 2190s was the struggle or it could be some level above that the SPX struggles with. We shall see…
  • Lastly, while holidays have been excellent turning points in 2016, per below, very high RSIs do not mean that the market will automatically have a top, as shown below, there have been 7 rally continuations out of 26 holiday instances when the daily RSI was above 70.

 Bottom line

For the November opex period, I made the following statement:

  • To be completely honest, anything could happen during this November opex period given the divergent condition of the various indices

Right now that still feels like the case. (sorry about that…)

  • The post election rally is powerful in the RUT, but not yet that strong in either the SPX or the NDX
  • The MID and RUT have broken out and are at all time highs. As can be seen in some of the RUT and MID’s other powerful rallies, they can continue to rally for far longer and far higher than expected. Their technical conditions are extreme, but I made that same observation last week and they have continued to rally with virtually no pullbacks.
  • One word of caution though is that when there is the inevitable dip it might last longer than expected given the long draught of 10 minute buy signals.

Essentially, there is no real historical edge at the moment. There are some caution signals that should mean a top is near, but there have been enough rally continuations in the same circumstances that a minor top and pullback of 30 plus SPX points is probable, but not super high probability.

For now, if you are involved, my best advice is to manage your risk appropriately. If not, then waiting for the price action during the week after Thanksgiving seems to be the most sensible course of action with a reminder – that I will cover in the December preview that the market always seems to rally for the December employment report after making a late November or early December low.

Happy Thanksgiving!

-D

DETAILS for Thanksgiving

 Current Conditions:

The current conditions are OB in the SPX / SPY with a daily RSI of 75 and MFI of 80, but they are not super extreme, and as shown below, RSI levels above 70 in the SPX do not mean a top is imminent.

The technical conditions are much more OB and extreme in the MID and RUT.

The RUT has been on a mission since the Nov 4th low, but it should be remembered that it was on a mission until the Friday after Thanksgiving in 2013 and 2014 and the Monday after Thanksgiving in 2015 and topped and fell sharply in to mid December all three years.

VERY HIGH RSI prior to a holiday.

There have been 168 holidays since 1998 and 26 have had a daily RSI around the holiday that has been above 70. The stats for those holidays are as follows:

MAJOR TOPS -3 (4th of July 2011, President’s 2011 and New Year’s 2000) Minor tops – 15 NO TURN – 7 (Christmas is frequently not a turn – though it has been more recently)

  • Most of the turns have occurred the day before or the day after the holiday.
  • Thanksgiving is the one holiday where the turns quite frequently occur the week after the holiday given the half day on the Friday post the holiday

Conclusion: A high RSI in to a holiday means a top – generally a minor one – is likely, but given the 7 rally continuations seen since 1998 it is by no means a certainty.

 Thanksgiving Historically

Thanksgiving is an excellent turning point, particularly for lows – though there was no turn in 2012 (due to the oversold opex day bottom).

2016 is the fourth year in a row that the market has rallied in to Thanksgiving

  • In 2013, there was just a minor top on the Friday after Thanksgiving.
  • In 2014, there was oddly both a minor top on the Friday after Thanksgiving and a Monday after bottom after a 25pt pullback.
  • 2015 – (MAJOR TOP Wednesday post holiday – a bit delayed) Fairly flat trading range between Nov 20th and Nov 30th (Holiday was on 26th). Market was waiting on the ECB meeting on Thursday, the 3rd. Market rallied 20pts on Tuesday, Dec 1st and then topped the day before the ECB at the open on Wednesday, the 2nd – a bit of a delayed holiday top. It was the top for the month of December. The market declined over 100pts in to the Dec opex bottom.

Holidays in General in 2016

Holidays have been remarkably consistent in 2016. Every holiday has produced a turn so far. With the exception of the minor tops around Memorial Day and the 4th of July, all of the tops have been MAJOR tops or bottoms this year. In September, the market major topped two days after the holiday and declined 69 pts in 5 days.

 

Opex preview for November 2016 (as of close of business on Tuesday, Nov 16th)

To be completely honest, anything could happen during this November opex period given the divergent condition of the various indices (new all time highs in MID and RUT – both very OB, SPX testing the top of its 4 month range, NDX in the lower half of its 4 month range).

Here are a lot of observations:

ELECTION PATTERN

  • The Employment Friday bottom was the latest bottom that the market had before a rally in to the election.
  • The previous latest had been Friday, October 31st, 1980. The market did not have a post election peak that year and instead rallied for 26 days and 13.3% before making a VERY significant top on Wednesday, November 26th, 1980. From that point, the market proceeded to fall 28% until August 1982.
  • The shortest election inspired rally was 7 days (1988 and 2008)
  • If there is NO election inspired pullback (3 out of 10 instances since 1976). Two of the rallies ended on 26-Nov (1980 and 1996). The third (2004) did not end until early in the new year.

MAJOR MFI OS Employment Bottoms

  • Once again, the SPY had a very brief OS period and then bottomed and rallied significantly. SPY OS periods never seem to last very long. This is 8 consecutive MAJOR OS Bottoms for the SPY.
  • The August 2015 and August 2011 sell offs were the only ones where the SPY fell significantly before bottoming.
  • The recent MFI OS employment bottoms had the following results
    • Feb 14 – rallied till the 7th of March
    • June 13 – Rallied for 4 days and 50pts. MAJOR bottom post opex
    • June 2012 – Rallied 15 days until making a post opex top and sharp week long pullback
    • August 2011 Rallied for 8 days and then pulled back to test the lows
    • July 2010 – Sharp rally till middle of opex week and then a pullback until the Tuesday post opex
    • Feb 2010 – Major Bottom on employment day and a rally till late April
    • Mar 2009 – MAJOR bottom on employment day and a rally that is still continuing….

Basically, no consistent pattern except for a strong rally for at least a few days and that has already been achieved.

November Employment bottoms

  • This is the latest employment inspired bottom in November since 2006 (employment day the 3rd). The market rallied until the Wed post opex (the 22nd) that year.
  • Since 1998, there have just been two years 2006 and 2016 that have had employment related bottoms so late in the employment week. If there are November employment bottoms. They have occurred earlier in the week.

Basically, what occurred with the bottom on Friday, Nov 4th was extremely rare and not part of the usual market pattern. This is because the last 3 days of October and the first 3 days of November are one of the historically best market periods of the year per Sentiment Trader.

RUT OB above daily and weekly Bollo bands

Below in the research section, I cover the periods where the RUT is above its weekly bollo band. Here is the conclusion:

  • Essentially, in 3 of the nine instances in the last 5 years, the advance continued at a reduced rate. 5 times, the RUT topped and fell and 1 time, there was a sharp pullback and then a choppy advance.

The RUT has also been above the daily upper bollo since last Friday. This has occurred 32 times since 2007.

  • 19 times the RUT has started a significant pullback within a few days. (most recent 7-Sep-16)
  • 7 times the RUT moved higher before eventually pulling back a somewhat (most recent July 2016 and June 16)
  • 6 times the market just kept relentlessly moving higher (Aug 2016)

Take your pick as to which will be the case this time.

Current Conditions

  • As noted below, they are not particular notable for the SPX / SPY, but are near extremes for the MID and RUT.

THANKSGIVING reminder

The period around Thanksgiving has consistently produced turns – generally minor tops (like in 2013 and 2014, though in 2015 it was a Major top) if the market is rallying and excellent bottoms if it is falling (2007, 2008, 2009, 2010 and 2011.)

BOTTOM LINE:

I would not be surprised by any outcome during this opex period through to Thanksgiving. The market is doing rare things this year with its pre election / employment bottom and very strong rally (and extreme rally in the RUT)

  • The market could top during opex week and pull back until post opex / post Thanksgiving (this occurred in 2009)
  • The market could top post opex around the Thanksgiving period (like the 1980 and 1996 election years and more recently 2013, 2014 and 2015)
  • The market (or at least the RUT) could put in a more significant top.

Overall, what is occurring and has occurred in the last two weeks is historically unusual. When that occurs, one must just be aware that the probabilities for any outcome occurring are reduced. ie. there is NO LONGER a strong historical edge.

 

Will be back, when something interesting comes up,

-D

Detailed Research

November opex Detail

  • Definitely gaining a reputation for major turns – especially bottoms lately – though that was not the case in 2013 or 2014. There was an opex Monday bottom in 2015.
  • Market made a turn during opex week 2007 (Wed – top), 2008 (Opex Day – Bottom), 2009 (Opex Day – low), 2010 (Tues – bottom), 2012 (Opex Day – Bottom) and 2015 (Monday – Bottom)
  • 2011 was the MAJOR sell off in to the post Thanksgiving low
  • 2012 was a MAJOR MFI OS Daily bottom on opex Friday
    1. 2007: Major top on the Wed of opex week and then fell in to the post thanksgiving low
    2. 2008: MAJOR BOTTOM on opex day and a huge 1 week bounce in to a post Thanksgiving top
    3. 2009: Just a minor low on opex day and a 3 day 27 pt bounce
    4. 2010: Major bottom on opex Tuesday – the initial bounce was just a week and 23 pts but the SPX never took out the opex low especially in the MID and the RUT
    5. 2011: MAJOR BOTTOM on the Friday post opex / post Thanksgiving – this one took more time than usual to form
    6. 2012: MAJOR BOTTOM on the Friday of opex week – we were daily OS and the market gapped up and ran post opex
    7. 2013: Employment was the Friday before and it helped create a strong all week rally. SPX minor topped on the Monday after and pulled back for 3 days and 25pts.
    8. 2014 – Rally continuation – after the MEGA bottom in October, the market was bid all of November and refused to pull back until the very end of the month
  • 2015 Fell hard during the week before opex week and then bottomed just above the lower bollo band and then rallied till Dec 2nd

Current Conditions  (as of close of business on Tuesday, Nov 16th, 2016)

There is nothing particularly notable about the SPY / SPX’s current technical conditions. The daily RSI (9) is 72 – which is on the high side, but not extreme. Also, when there has been a significant bottom in the Oct / Nov time frame, the SPY RSI can stay elevated for some time.

  • Nov 2014 – Daily RSI hit 72 on 5-Nov. Market did not top out and really pull back until 5-Dec-14, some 60pts higher than its 5-Nov level
  • Nov 2006 – Daily RSI hit 71 on 14-Nov. Market headed higher till 22-Nov. It was a low volatility uptrend, so the market only advanced 14pts before topping on 22-Nov and pulling back 30pts.
  • Nov 2005 – Daily RSI hit 72 on 10-Nov and the market just stalled (did not really pull back) on 23-Nov – some 40pts higher

The IWM /RUT is the index that is the MOST extreme as it is currently above both its daily and weekly bollo bands and also at an all time high. The daily RSI is 81, which is also high.

The RUT upper weekly bollo breach is an interesting one

  1. 11-July-16 –(advance continued) market continued higher without pulling back
  2. 22-Jun-15 – (topped and fell) Hit all time high post opex and began a steep fall
  3. 16-Mar-15 – (brief pullback) Hit an all time high and pulled back sharply for one week post opex. Then continued slowly higher in a more choppy fashion
  4. 3-Mar-14 – (topped and fell) Hit an all time high and pulled back initially for a week. Re-tested the high during opex week and then fell away to lower weekly bollo in April
  5. 8-Jul-13 – (advance continued) All time highs and kept slowly going higher until early August and then pulled back for 4 weeks.
  6. 13-May-13 – (topped and fell) Topped out post opex week and fell slowly to the 20 week MA over a 4 week period
  7. 10-Sep-12 –(topped and fell) Topped at the close of this week and fell for two months to the lower weekly bollo
  8. 30-Jan-12 – (advance continued) Slight breach – Market stalled and barely advanced. Topped just 2% higher in late March and then fell away to lower weekly bollo in late May
  9. 25-Apr-11 –(topped and fell) Barely breached at the close of the week. Topped the next Monday and began the long fall to the October 2011 bottom.

Essentially, in 3 of the nine instances in the last 5 years, the advance continued at a reduced rate. 5 times, the RUT topped and fell and 1 time, there was a sharp pullback and then a choppy advance.

The MIDcaps have been hourly OB since last Friday. So far, they have been OB for 15 hourly bars. The longest OB duration in the last 7 years is 26 periods. There have been 28 instances out of 381 signals that the signal has lasted 15 or more bars.  Only 6 of these signals resulted in a MID pullback of more than 30pts.  The two most recent extended signals were in June and July of 2016. Neither signal produced a significant pullback.

When OB on the Friday before opex week, the market has tended to have some sort of opex related pullback (except for July 2016). Quite frequently the market has short term topped between opex Tuesday and Thursday and then pulled back

 

November 2016 Turning Point Preview (as of cob on Tuesday, 1-Nov-16):

The following is my monthly turning point preview that touches on important and interesting historical information about the upcoming month.

With yesterday’s low, the market has done something it has not done in an election year since some time before 1950 which is break the October low prior to the election.

  • (It did almost occur in 1968 – but the market made a slightly higher low on Monday, Nov 4th and then rallied all of November until peaking on Dec 2nd and then the bear market resumed.)

It also did something it has only done 7 times since 1976 (40 years), which is to break below the August – October low in November. The full research is below. The most notable points are the following:

  • The last 3 times it occurred were election years (2012, 2008 & 2000) and the low for the month was NOT until late in the opex / post opex period
  • The market did not go much lower at least initially after the low break without rallying (like in 2008 and 2000) first. The longest period between low break and trade-able low was 3 trading days (1991) with 2012 and 1976 taking two days

This second point is quite a positive one for long side positions. (See SPECIAL RESEARCH below for the full info)

Overall, November is a challenging month for swing traders that are looking for turns as it tends to be a month that only provides clear turning point opportunities from the latter part of the month (opex and later) for entries on the long side.

  • The only real exception to this point in recent history was in Nov 2009 when the low for the month and the end of the post October opex correction ended on Monday, November 2nd. It is possible that this is what occurred yesterday (a pre Fed, pre employment, 1st trading day of the month low), but the election pattern would suggest that the SPX 2098 low is a temporary low.

ELECTION Year Pattern

While the employment report and the Fed meeting are before the election, it is ultimately the election that will be the key driver for the month of November.

This year the SPX has not really followed the election year pattern in an identifiable manner, but the RUT has followed it extremely well.

Per previous posts, the election year pattern is as follows:

    • A final pullback during the latter part of October (has occurred 9 out of 10 times)
  • The latest low was Friday, 31-Oct-80, 4 days before the election. The market then rallied until the end of November
    • A peak right around election (7 out of 10 times)
  • Most of these peaks have been between the Monday and Wednesday of election week – the one exception was the peak on the Thursday before in 1988 (3-Nov-88)
  • The 3 exceptions were 1980 and 1996 – (rally continued in both instances until Nov 26th and 2004’s rally which continued until 3-Jan-05)
    • A final low (generally for the year) in Mid November (7 out of 10 times)
  • In both 2008 & 2012, this low were both wonderful oversold lows on November opex day
  • The smallest pullback was the 6 day 1.4% pullback in 1992.
  • The 2012 pullback of 6.3% is right at the median for mid November pullbacks
    • Year End Rally or at least a rally in to late November
  • Per above, the 1980 & 1996 rallies ended on Nov 26th.
  • The 1984 rally at 2.4% in 9 days was the shortest and smallest
  • The median rally has lasted 21 days and carried the market 6.2% higher

FOMC

Market almost always rallies in to the FOMC. Occasionally, it is just a bounce – like the one most recently seen in June 2016 that lasted just from the Tuesday to the Wednesday thanks to the opex dynamics. Generally, the bounces last at least a few days.

EMPLOYMENT

Weakness before the employment report is a November edge for longs.

OPEX

The highest probability opportunities for November opex have been bottoms during opex week or post opex week. November 2015 saw the earliest possible MAJOR Bottom on opex Monday, Nov 16th, 2015. In the last two election years, there were significant bottoms on November opex day.

THANKSGIVNG

The period around Thanksgiving has consistently produced turns – generally minor tops (like in 2013 and 2014, though in 2015 it was a Major top) if the market is rallying and excellent bottoms if it is falling (2007, 2008, 2009, 2010 and 2011.

Current Conditions”

The market generated a fairly strong OS hourly buy signal on Tuesday. The last time there was a Tuesday before employment hourly buy signal was this past August. That day was the low for August and the end of a very brief correction. The signal before that was at the MAJOR LOW on Tuesday, September 29th, 2015

With a daily MFI (14) of 26 and an RSI (9) of 29, the SPY is at technical levels when it is near / at a bottom.

BUT, there are two cautionary points. The first is that buying the initial breakdown or selling the breakout from an extended trading range tends to be risky. The second is the declining daily Bollinger bands. Observationally (not textbook)

  • When the daily bollo bands are rising or flat, the market is generally near a good buy point when it breaches the lower bollo bands.
  • When the lower bollo band has been declining for a period of time, then buying a breach of the lower bollo band is riskier – at least in the short term, especially when option expiry dynamics are not present. The January 2016 sell off is a good example of the waterfall decline that can occur when a declining lower bollo band is breached.
  • The lower daily bollo band on the SPX is currently at 2115

Bottom Line:

Overall, the market looks to be setting up for a good November buying opportunity. Generally, these occur later in the month some time between the start of opex and post Thanksgiving. 2009 was the one recent year that had an early month buying opportunity that was more than a trade-able bounce opportunity.

  • A lot of the current factors (early November lows, FOMC meeting, November employment and the historical tendency for the market to bounce in to the election) are present.
  • The technical factors – specifically the breakdown from an extended trading range and the declining lower bollo band – increase the risks for the long side.
  • The break of the October low in November – pre election – which has not been seen since some time before 1950 may mean nothing, but it does highlight that November 2016 will be a slightly different election year month.

For now, the long side is well supported from a historical standpoint – ex the election risk and the declining lower bollo band condition – for a bounce in to the election.

For swing traders, the election year pattern and the overall dynamics for the month of November mean that the second half of the month is historically the best time for long positions.

With yesterday’s SPX break of 2115, the market has definitely become more interesting,

-D

Detailed Turning Point Comments for November 2016

October / November FOMC

The market tends to rally in to the FOMC meetings. The only October / November FOMC meeting that the market did not rally in to was in 2012. The market bottomed on the Friday after the FOMC meeting that year.

  • The last time the market fell down and through the FOMC meeting was in April 2015
  • In June 2016, the market bottomed on the Tuesday before and bounced just under 20pts before topping on FOMC day and forming a lower low and MAJOR bottom on Opex Thursday, the day after FOMC.

November Employment

  • While some significant moves have occurred– there does not seem to be a real edge.
  • Other than 2007 and 2015, the market has rallied in to the number with the market making bottoms during the week before the number in 2008 (Thurs), 2009 (Monday), 2011 (Tuesday) 2012 (Tuesday with futures – due to the market being closed by Sandy) and 2013 (Thursday before). In 2010 and 2014, there were small dips during the week before the report, but the noticeable pullback lows had been made previously in October.
  • In 2007 (Wed, Oct 31st post FOMC announcement) and 2015 (Tues, Nov 3rd), market rallies ended

November Opex

    • When falling in to November opex, the market has set up a number of great buying opportunities
  • 2008 – opex day
  • 2010 – opex Tuesday
  • 2011 – Friday post opex and post Thanksgiving
  • 2012 – opex day
  • 2015 – opex Monday
  • When rallying in to opex, there is no set pattern. It has only occurred 3 times since 2007. There were small post opex pullbacks in 2009 and 2013 and a rally continuation in 2014.

Thanksgiving Holiday

  • Thanksgiving is an excellent turning point, particularly for lows – though there was no turn in 2012 (due to the oversold opex day bottom)
  • There were just minor tops on the Friday after Thanksgiving in 2013 and 2014
  • In 2015, the end of the opex driven November rally occurred on Tuesday, Dec 1st

SPECIAL RESEARCH

November makes a low below the low since August 1st

The market has just had a rare occurrence. The lows in the second half of the year – actually from 1-August – rarely occur in November. (most of the time it is in October). It has now occurred just 8 times since 1976. (40 years). With just seven previous instances, it is hard to draw definitive conclusions, but here are some observations from the data:

  • The last 3 times it occurred were election years (2012, 2008 & 2000) and the low for the month was NOT until late in the opex / post opex period
  • The market did not go much lower at least initially after the low break without rallying (like in 2008 and 2000) first. The longest period between low break and trade-able low was 3 trading days (1991) with 2012 and 1976 taking 2 days
  • 3 times the market proceeded to make a lower low in December (2000, 1994 & 1991)
  • 3 times the Nov-Dec low was a long lasting low (2012, 1994 & 1991)
  • 4 times there was a lower low within 3 months (2008, 2000, 1977 & 1976)

 

Here are the instances:

    • Nov 2012 – low break occurred on Wednesday, Nov 14th – final low was two days later
  • Nov-Dec trade – After peaking on election day, Nov 6th, the market declined 6.3% until opex Day, Friday, Nov 16th. It then embarked on a 7.8% rally until Dec 19th.
  • Longer term: After one last fiscal cliff related pullback from Dec 19th till Dec 31st, the market took off in January 2013 and barely slowed down on a weekly basis until late May 2013.
    • Nov 2008 – low break initially occurred on Thursday, Nov 13th – market rallied sharply this day, but then reversed lower the next day
  • Nov-Dec trade – After rallying 19.3% from Tuesday, Oct 28th till election day, the market then fell 26.5% from election day until opex day, Friday, Nov 21st. The market then rallied 24% until Dec 8th and made its final rally high on Tuesday, Jan 6th.
  • Longer term: From the Jan 6th high, the market had a choppy move lower in January, followed by the sharp drop in February that culminated in the bear market low on Friday, March 6th, 2009
    • Nov 2000 – low break initially occurred on Wednesday, Nov 22nd – there was then a bounce from this level before the market went lower. This was a very VOLATILE year
  • Nov-Dec trade The pre election rally started on Oct 18th and ended on Monday, Nov 6th – The day before the election. The market then proceeded to fall in 3 distinct waves until bottoming on Thursday, Dec 21st. (Declines from Nov 6th to Nov 13th, Nov 15th to Nov 22nd and Dec 11th to Dec 21st) The rally then lasted till 31-Jan-01.
  • Longer term – After the December 2000 – January 2001 bounce, the market really started the 2000 – 2003 bear market in earnest with the first substantial rally not occurring until March 2001
    • Nov 1994 – low break initially occurred on Wednesday, Nov 23rd – the market bounced from this low and then moved slightly lower
  • Nov-Dec trade – The market fell fairly hard on the week of 31-Oct-94, then had a stable week before starting to fall 5.2% between Nov 15th and Wed, Nov 23rd (pre Thanksgiving). Market stabilized for 2 weeks before making a slightly lower low on Friday, Dec 9th and then headed decisively higher
  • Longer term – After the December low, the market took off and never looked back in 1995
    • Nov 1991 – low break initially occurred on Tuesday, Nov 26th – the bottom was just at a slightly lower level the following Monday.
  • Nov-Dec trade – Market hit the high for November on Thursday, Nov 14th and (for a reason I could not remember or discover), the market fell 3.7% on Friday, November 15th. The market then continued lower another 2.9% in a choppy fashion until bottoming on Monday, 2-Dec-91. The market then started a very strong December rally.
  • Longer term – The December low and the December sprint higher led to a fairly flat / slightly upward sloped trading range market between January and mid November 1992. The market then broke higher and did not look back.
    • Nov 1977 – low break initially occurred on Thursday, Nov 3rd – bottom was that day
  • Nov-Dec trade – Low for the month was on Thursday, 3-Nov and the market rallied all month until peaking on Friday, 25-Nov – post Thanksgiving. December was an inside month with a low for the month on 7th & 21st of Dec (double bottom) and a high on 30-Dec.
  • Longer term – Market held up in December, but then fell again in the first 3 months of 1978 until make the bear market bottom on Monday, March 6th, 1978
    • Nov 1976 – low break initially occurred on Monday, Nov 8th – bottom was 2 days later
  • Nov-Dec trade: The pre election rally ended the day before the election on 1-Nov and the market fell 5.4% in 9 days (till 10-Nov) and then proceeded to rally 10% until 3-Jan-77
  • Longer term: After the end of the election rally in January 1977, the market fell 20% until making a long term bottom in March 1978

 

October 2016 Turning Point Preview (as of close of Business on Tuesday, October 4th ):

The turning points continue to work in this challenging, narrow range environment, but I will admit that none of them have felt particularly high probability or actionable – but in September, the market did experience:

  • A MAJOR post holiday / post employment top
  • A somewhat surprising Opex Monday bottom
  • A day after FOMC top

The challenge seems to be that the market keeps visiting the same levels and never gets to any real extremes either technically or level based. The only technical signal that seems to be working somewhat well is the Hourly OB and OS signals on the MID – BUT –the buy signals need to be taken with a one day delay and the sell signals need to be taken at the earliest in the 2nd hour after the signal is confirmed.

October is generally a GREAT month for significant turns, but given the current market’s inability to muster enough energy for a strong move in either direction, this may be a month that bounces around waiting for the election.

ELECTION PATTERN

Overall, The market is following roughly the Election year pattern that is posted here:

https://pugsma.wordpress.com/denalis-turning-points-2/denalis-turning-points-2016/

  • The post FOMC high at 2180 on 22-Sept is in line with the pattern. The smallest pullback from a September peak high was 2.7% or SPX 2120, so the pattern would suggest the market still has some more downside

As for the other aspects:

  • Pullback ends in late Sep / early October and market bounces. The average pullback lasted 21 days which would be October 13th. Though in general, the September peaks that occurred later in the month tended to have the shortest duration pullbacks.
  • Mid / Late October top – these can be either around employment or late in the opex period.
  • Late October pullback low and rally in to the election. This has always occurred. With the exception of 18-Oct-00, the lows have been between the 22nd (1976) and the 31st (1980)

This pattern was followed quite closely in 2012. The market peaked in September the day after the FOMC meeting, bottomed in late September (Wednesday, the 26th) and then peaked again on employment day – October 5th (at 1471) fell till Friday, October 12th (at 1427) and rallied till Opex Thursday, the 18th (at 1464) and then fell till October 26th (at 1403) before hitting 1433 on election day and falling to the final November low on Opex Friday at 1343. There has been a post FOMC peak in 2016 as well, but the rest remains to be seen.

OCTOBER Turning Points and characteristics

October 2016 has just two normal turning points this year:

  • Employment – No real edge – October characteristics seem to have a much greater impact
  • Opex – Is again mixed – the market will turn if it gets in to an extreme condition, but it is also heavily influenced by what has occurred in the preceding two weeks.
  • Note: FOMC is on November 1st and 2nd – the week before the election – The market continues to rally in to the FOMC meetings.

October Characteristics

These are covered more fully below

  • Last 3 trading days of September / First 3 trading of October bounces or bottoms: It is possible the bounce from the low on the 28th (2145) to the high on the 29th (2175) satisfied this characteristic, but a break of 2140 on Wednesday and a sharp move lower MIGHT create the conditions for a reasonable bounce in to the employment report. The fact that the market has gotten hourly oversold today, Tuesday, the 2nd, does provide some technical support for this possibility, but given last week’s bounce it does not feel truly actionable.
  • 2nd week of October – another key time – it is too early to cover the possibilities for next week, but either a strong employment driven bounce in to next week or a move lower that breaks 2120 could create the conditions for a reversal in to opex week. Again, nothing actionable right now, but this October characteristic is something that one should be aware of.

YEARLY SPX highs – this is an odd one.

I remember commenting in October 2012, that the last time the high for the year had been in September was in 1978. Of course, in 2012, the high for the year was the post FOMC high on September 14th at 1466. Interestingly, August is another rare month for an annual high. It has just occurred three times since 1948 – 1956 (an election year), 1959 & 1987.

The SPECIAL RESEARCH below highlights the fact that the market has almost always made a significant TURN during the second half of the year after touching either the lower or upper weekly Bollinger bands since 1998. Generally, these tend to be bottoms. There have been 3 tops and 3 years where nothing occurred. In July, the market had a number of weeks where it hit the upper Bollinger band, so this study’s condition for a significant H2 top has been met.

BOTTOM Line

Overall, I do not feel that I have been able to provide any truly actionable advice with strong support from historical probabilities since early September. Given the fairly tight range – really since mid July with the exception of those the sharp Friday / Monday pullback at the beginning of September, there really has been a lot more risk than reward. If you have done well during this period, you are clearly a skilled range trader! – well done!

For me, the key points to be aware of are:

  • The election pattern is still active and actionable
  • Hourly signals have worked since early August with a one day delay on the buys and at least an hour’s delay on the sells.
  • This week (with the last 3 days of September / first 3 days of October), next week (the 2nd week of October) and the opex period all provide the market with good historic turning point opportunities.
  • There is some technical support for the 2194 August high to be the high for the year (see special research below), but it would be unusual historically (just like in 2012) for the August high to remain.

For now, unless there is something clearly actionable, I will be back with my next update during the October opex period.

Apologies for the radio silence, but the market just has not triggered too many interesting historical patterns since late June.

Still interesting, but a little less so….

-D

SPECIAL RESEARCH

One of the more interesting things about market history is that while it never repeats exactly, there are some historical facts that do seem to be found in almost every year. One of those facts is that during the second HALF of almost every year since 1998, the market has made a significant turn after touching the lower or upper weekly Bollinger Band. Most of these significant turns have been bottoms.

Since 1998, the market has touched the upper weekly Bollinger band in 3 instances and had significant tops occur at some point in time during H2 of that year:

  • 2012 ** MAJOR SIGNIFICANT TOP on Friday, 14-Sep – day after FOMC at 1475 (there was also a November bottom)
  • 2007 : Significant MEGA TOP on Thursday, October 11th at 1576
  • 2000: : SIGNIFICANT MAJOR TOP on Friday, 1st of Sept at 1530 (employment day)
  • The SPX did touch the upper weekly Bollinger band on a number of occasions in July, but there has yet to be the signs that a significant top has been made.
  • There have been 3 years where there was NO significant turn in H2 – the beginning of bull market years of 2003 and 2009 and somewhat surprisingly, the persistently bullish year of 2013. In all three of those years, there were multi week pullbacks during the second half of the year, but none of the tops that were made were particularly significant or substantial.

The list of significant H2 bottoms is MUCH longer

  • 2015 MAJOR BOTTOM on Monday, Aug 24th post opex at 1867
  • 2014 – SIGNIFICANT MAJOR BOTTOM on Opex Wednesday, the 15th well below lower bollo at 1821
  • 2012 – MAJOR Significant bottom on Opex Friday, Nov 16th at 1343
  • 2011 SIGNIFICANT MAJOR BOTTOM on 2nd trading day of Oct – Tues, 4-Oct at 1075 – Tuesday before employment
  • 2010 – Thursday, July 1st at 1011
  • 2008 – 21st of November at 741 (Opex Friday)
  • **2007 (DOUBLE TURN) – opex Thursday, August 16th at 1371 –(** but this was not the primary turn – the October top was the primary turn)
  • 2006 – re-test of June low on 18-July at 1225
  • 2005 MAJOR Significant BOTTOM on Thursday, October 13th at 1168
  • 2004 – Significant low on Friday, Aug 13th at 1060 – LOW for the year
  • 2002 – SIGNIFICANT Bottom on Thursday October 10th at 769
  • 2001 – SIGNIFICANT BOTTOM on Opex Day, Friday, Sept 21st at 945
  • 1999 – SIGNIFICANT bottom below lower bollo on Monday post opex, 18th of Oct at 1234
  • 1998: SIGNIFICANT BOTTOM on Thursday, 8-Oct at 923 well below lower bollo

DETAILED Research

October 2016 has just two normal turning points this year:

  • Employment – No real edge – October characteristics seem to have a much greater impact
  • Opex – Is again mixed – the market will turn if it gets in to an extreme condition, but it is also heavily influenced by what has occurred in the preceding two weeks.

October characteristics

There are two key October characteristics.

  • Last 3 trading days of September / First 3 trading of October bounces or bottoms
  • 2nd week of October – another key time

Last 3 trading days of September / First 3 trading of October bounces or bottoms

The idea is that there is at least ONE big up day during the last 3 trading days of September or the first three days of October, if not a significant bottom

  • Key is simply judging the circumstances
  • For now, September opex does not seem to provide any clues as to what might transpire.
  • It works BEST after BIG down days
  • In post opex uptrends, it is generally just a nice pullback that provides the buying opportunity.
  • In post opex downtrends, it can be either the bottom or will at least produce a strong bounce that will lead to a stronger bottom later in October. (eg 2012 and 2014)
  • there is one exception, as the market made its low in 2007 on the 4th to last trading day of September which was the Tuesday post opex that year.
  • Major Lows in 1999, 2003, 2009, 2011 and 2015 – marked a significant turn
  • Day move – 2008 – still worth 60 SPX points, but needed to sell on the day
  • 4 times since 1998 – it has been a one day move
  • Smallest Price move – 23 points
  • Details since 2009
  • 2009, 2010 and 2011 – ALL have had low on the 2nd day of October and there have then been very large bounces!
  • 2009 and 2011 had low stochastics – near 30
  • 2012: Bottomed on the 3rd to last day of September on the Wed post opex the market then bounced 42 pts to October employment Friday
  • 2013: There was just a 23pt bounce from Sept 30th to Oct 1st and then downtrend continued for another 8 days
  • 2014: 2nd day of October – Strong Thursday pre employment to Monday post employment bounce (53pts)
  • 2015: Q4 bottom was on Tuesday, September 29th well below the lower daily bollo– the market took a while to get moving, but then took off on employment Friday.

2nd week of October – Another KEY turn time

The other special thing about early October that is becoming more frequent is the MAJOR TURN during the second week in October. It is the time of year for the most frequently occurring major turns that I can not assign a normal turning point to.

Three significant recent examples of the second week of October major turns are the MAJOR Low in 2013 (Wednesday, October 9th), the Major LOW in 2008 (on Friday, October 10th) and the 2007 MAJOR TOP – the all time high for many years –(Thursday, October 11th)

There is not always a turn during the second week of October, but it has occurred frequently enough that one needs to be aware of the possibility.

Overall, There have been seven significant bottoms during the second week of October since 1987 (1990, 1991, 1998, 2002, 2005, 2008 and 2013)

Tops are rarer – just three (2007, 1997 and 1989)

Here are the details

  • 2013 – MAJOR BOTTOM during the second week of October on the Wednesday and then a strong rally that lasted the rest of the month (note there was NO employment report as it was delayed due to government shutdown)
  • 2008 – MEGA slide till Friday, the 10th of Oct – there was then a 204pt bounce from the Friday to the following Tuesday – opex Tuesday (low was not broken till mid November)
  • 2007 –High on Thursday, October 11th at 1576 lasted for 5 ½ years
  • 2005 – Correction that started in the summer ended on Thursday, 13th of Oct –it was last buying opportunity below the 200 day MA till May 2006
  • 2002 – Major double bottom low on Thursday, the 10th of October (the bear market low at 769)
  • 1998 – HUGE panic LOW on Thursday, 8-Oct (LTCM and emerging markets)
  • 1997 – Wednesday, 8-Oct peak and then a crash on 27-Oct (SPX down 7% on the day) with a bottom on 28-Oct
  • 1991 – Significant low on Thursday, October 10th that led to an almost 6% rally that ended in November 91.
  • 1990 – Low for the year was on Thursday, 11-Oct
  • 1989 – Peak for the year was on Tuesday 10-Oct

October Employment

There is no real edge to October employment. For some reason, October is much more dominated by the impact of the calendar as there are two key calendar characteristics related to October that are not seen in other months.

    • For October employment, there have been 3 important bottoms during the last 3 trading days of September / first 3 trading days of October – but in all three of these instances the market had been selling off a fair amount since after the September FOMC meeting
  • 2015: Tuesday before (Sept 29th) – low for Q4 and then market took off
  • 2011: Tuesday before (Oct 4th)
  • 2009: Employment Day (Oct 2nd)

In recent years the late September / October characteristic has also produced a number of tops after the bounces ended

  • 2014 MAJOR TOP on Monday after – market had bounced sharply from Thursday before
  • 2013 – Fiscal Cliff – employment report postponed – Market bottomed for Q4 on Wednesday, October 9th
  • 2012 Post September opex bounce ended on employment day and the market slid for a week

2010 has been the only recent year where a market rally continued – though in 2007 – the rally ended on Thursday, October 11th and created that longstanding top.

2008 is the only year where the market continued to fall. It fell till Friday, the 10th of October.

October Opex

  • From October 2008 to October 2012, opex in October was all about WHEN would the market top? In the last three years, the market has made MAJOR BOTTOMS prior to October opex day (2013 – week before, 2014 – Opex Wednesday and 2015 – last Tuesday in Septemberr) and seen strong rallies out of the opex period.
  • Since 1998, there have been
  • 2007: A Minor bottom on the Monday after and then a 9 day bounce in to the MAJOR FOMC top on 31-Oct
  • 2008: A HUGE Friday before opex to opex Tuesday bounce – but that was the high and the market was very volatilie, but eventually fell in to the end of October
  • 2009: MAJOR Top on the Wednesday after and then fell in to November (note the Monday after opex had the high close and then there was a bizarre spike on the Wednesday after to make the high)
  • 2010: A week with limited volatility – bounced in to a minor top on the Monday after – but the pullback was just 1 day and 26pts
  • 2011: After the MAJOR Bottom in early October, opex week was a tug of war that the bulls won – though the SPX topped out the Monday after and had a 2 day 36pt pullback
  • 2012: MAJOR TOP on the Thursday of opex week – fell for 8 days and 61 pts and then Hurricane Sandy came and stopped any further declines till the election
  • 2013: minor top There was the delay employment report on the Tuesday post opex – it was really barely a turn, but the market did minor top on the employment report and pulled back 20 pts
  • 2014 – MEGA BOTTOM on Opex Wednesday – relentless selling in October with multiple closed below the lower bollo band and an extended lower bollo band run finally ended on opex Wednesday and the market reversed sharply higher
  • 2015 – Rally continuation – Market saw a MAJOR Bottom at the end of September and the rally continued through the opex period in to early November.

OCTOBER is the most critical month for MAJOR turns

  • Though it does not seem like that will be the case in 2016

October is probably best remember for the Crash of ’87 and the 2007 top, but in reality, the month is the most critical one for MAJOR significant turns. It does not happen every year, but it happens often enough that one needs to be of October’s historical track record:

  • 2015 – Market bottom was on Tuesday, Sept 29th and the market rallied persistently all of October
  • 2014 – MEGA BOTTOM on Opex Wednesday – relentless selling in October with multiple closed below the lower bollo band and an extended lower bollo band run finally ended on opex Wednesday and the market reversed sharply higher
  • 2013 – MAJOR BOTTOM during the second week of October on the Wednesday and then a strong rally that lasted the rest of the month
  • 2012 – Actually a slow down month after the MAJOR TOP in September – quite an unchareristic October
  • 2011 – Oct 4th – Tues bottom – low for year
  • 2010 – NONE – strong month long rally
  • 2009 – corrective low on 2nd of Oct and then post opex top
  • 2008 – MEGA slide till the 10th of Oct
  • 2007 – All time high on 11-Oct
  • 2006 – None – strong rally all month
  • 2005 – Thursday, 13th of Oct was last buying opportunity below the 200 day MA until May 2006
  • 2004 – An unusual October pullback from a high on the 7th to 25-Oct pullback then the usual year end surge occurred
  • 2003 – None – Major pullback low on Sept 30th and then a post opex pullback
  • 2002 – Major double bottom low on Wed 9-Oct
  • 2001 – strong rally from the post 9/11 opex lows stalled out during opex, but the rally re-gained energy at the end of the month
  • 2000 – Plunge till Wed of opex week – October 18th
  • 1999 – Summer correction ended on Monday, post Opex – October 18th and then there was a HUGE year end rally
  • 1998 – HUGE panic LOW on Thursday, 8-Oct (LTCM and emerging markets)
  • 1997 – 8-Oct peak and then a crash on 27-Oct with a bottom on 28-Oct
  • 1994 – key low on Wednesday, October 5th and then a 5% rally for the month
  • 1992 – Sudden plunge – but then final low for the year on Monday, 5-Oct
  • 1990 – Low for Year was on Thursday, October 11th
  • 1989 – Peak for the year was on Tuesday, the 10th of October
  • 1988 – Peak for the year was on Monday post opex – 24-Oct
  • 1987 – Crash and low was on 20-Oct – Tuesday post Opex

Election Year Pattern as of 2012

Somewhat surprisingly, from September through the end of the year, the election year has a fairly set pattern. Going back to 1976, there have been 10 election years. The pattern has been followed closely in three of the last four election years (2012, 2008 and 2000, but not 2004 as the oversold annual low was made in August). No historical pattern is perfect, but the current year pattern with no oversold bottom in either July or August does increase the likelihood that at least some portion of the pattern is followed. The three election years (1988, 1996 and 2004) that did not really follow the election year pattern all had quite oversold major bottoms during July or August.

The election year pattern is as follows:

Typical pattern sees a peak in September

    • Earliest peak was 1-Sep-00 and 2-Sep-08. 14-Sep is a popular date too (1984, 1992 and 2012). Latest date was 25-Sep-80
    • Median pullback is -6.4%. Largest was 2008 at 35.5% and the smallest was 2.7% in 2004
    • 8 right 2 None (1988 and 1996)

Pullback ends in late Sep / early October and market bounces

    • The shortest duration pullback was the 4 day 6.1% pullback in 1980. The 2.7% 7 day pullback in 2004 was also short
    • The initial pullback in 2012 was just 3.0% over a 12 day period
    • 8 right and 2 None (1988 and 1996)

An October bounce top – these are generally in mid October, but as they tend to be oversold bounces, they have varied

    • The median bounce has been 4.9% – but it is really dependent on the size of the initial pullback.
    • In 2012, the market pulled back 3 % in 12 days and then re-tested the highs with a 9 day 2.8% bounce
    • 7 right, 2 No (1976 and 1992) and 1 sort of (the 1 day 3% bounce on 28-Sep-00)

A final pullback during the latter part of October

    • The earliest pullback low was 18-Oct-00 after a 10.7% fall. The latest was 31-Oct-00
    • 9 right and 1 No (In 1992, the market rallied in to the election after the 5-Oct-92 low)

A peak right around election

    • In 7 years, there has been a peak around the election.
    • Most of these peaks have been between the Monday and Wednesday of election week – the one exception was the peak on the Thursday before in 1988 (3-Nov-88)
    • 7 and 3 (1980 and 1996 – rally continued until Nov 26th and 2004’s rally went till 3-Jan-05)

A final low for the year in Mid November

    • In both 2008 & 2012, these lows were both wonderful oversold lows on November opex day
    • The smallest pullback was the 6 day 1.4% pullback in 1992.
    • The 2012 pullback of 6.3% is right at the median for mid November pullbacks
    • 7 Right and 3 Wrong (1980, 1996 & 2004 – per above)

Year End Rally or at least a rally in to late November

    • Per above, the 1980 & 1996 rallies ended on Nov 26th.
    • The 1984 rally at 2.4% in 9 days was the shortest and smallest
    • The median rally has lasted 21 days and carried the market 6.2% higher

Somewhat surprising is that despite the year end rally, only half the time has the annual high in the S&P 500 been post election (in 2012 it was on Sep 14th)

    • 2004 – Friday, Dec 31st
    • 1996 – Tuesday, Nov 26th
    • 1992 – Tuesday, Dec 29th
    • 1984 – Wednesday, Nov 7th
    • 1980 – Wednesday, Nov 26th

Bottom Line

The election year pattern as shown above is important to keep in mind for the rest of the year. Each aspect of it will probably not happen this year – though it did occur in the last two election cycles, so one never knows.

Below is ALL of the historical election year detail since 1976.

Ever interesting,

-D

ELECTION Year Detail

September Peaks

Smallest pullbacks were just under 3% and lasted a week. Timing really looks to be later in September with the 17th through the 23rd being the key period

  • 1976 -Wed, 22-Sep – High for the year – initial pullback was 8.7%
  • 1980 Tues 25-Sep – pullback was approx. 6%
  • 1984: Thurs 14-Sep pullback was approx. 6%
  • 1992: Peaked on Tues 14-Sep – pullback was 6.7%
  • 2000: Friday, Sept 1st – pullback was 7.3%
  • 2004: minor top on Sep 21st and a pullback for a week and 2.7%
  • 2008:  Peaked on day after Labor Day at 1303 – fell till Opex Thurs (17th) at 1138 then Paulson peak on Opex day: 18-Sep at 1265 – first pullback was 12.7% – second one was 34%
  • 2012: Peak after QE 3 on Fri, 14-Sep – initial pullback was 3 %

No

  • 1988: Minimal – really no pullbacks until post election
  • 1996: No – Low for the year was tested in July below 200 day MA and then a persistent rally began

 Late Sep / Early Oct pullback low and bounce

  • 1976: Did not end till 22-Oct
  • 1980: short 6.1% pullback ended on 29-Sep
  • 1984: 26 day pullback ended on 10-Oct with the S&P 5.7% lower
  • 1992: 5-Oct was the last low pre election. Market had fallen 6.7% in 21 days
  • 2000: 27-Sep was the end of this 7.3% pullback. There was then a 3% bounce the next day
  • 2004: This is the smallest recorded pullback – the 2.7% 7 day pullback ended on 28-Sep
  • 2008: VOLATILE market – post the Paulsen bazooka peak on opex day, the market continued to fall until Friday, 10-Oct
  • 2012: After a 3% 12 day fall, the market bounced on Sept 26th – the Wed post opex

NO

  • 1988: Market rallied till 24-Oct
  • 1996: Market rallied till 21-Oct

Mid October Rally top

  • 1980: 16-Oct after a 10% rally
  • 1984: 19-Oct after a 6% rally
  • 1988: 24-Oct was the start of the first pullback – lasted just 3 days, but pullback was 2.8%
  • 1996: 21-Oct saw the first real pullback – just 2.5% over 8 days
  • 2004: 6-Oct-04 saw the end of an 8 day 3.7% bounce
  • 2008: Opex Tuesday, 14-Oct saw the end of a breathtaking 24.3% rally that occurred from the Friday before!
  • 2012: 5-Oct-12 was the end of a 9 day 2.8% bounce

None

  • 1976 – None as the pullback continued until 22-Oct
  • 1992 – From 5-Oct low market rallied till 3-Nov (election day)

Sort of

2000 – Market had a quick 3% 1 day rally end on 28-Sep and then it declined 10.7% to 18-Oct

End of October Pullback

  • 1976 22-Oct was the final pre election low
  • 1980: 31-Oct was the end of a 15 day 7.8% pullback – the market then rallied right through the election till 26-Nov
  • 1984: 29-Oct was the end of a 10 day 2.9% fall
  • 1988: 27-Oct was the end of a sharp 3 day 2.8% fall
  • 1996: 29-Oct was the end of an 8 day 2.5% pullback – like 1980 this was the last low till 26-Nov
  • 2000: 18-Oct was the end of the final 20 day 10.7% fall
  • 2004: 25-Oct after a 4.6% 19 day pullback was the last buying opportunity in 2004!
  • 2008: Market was volatile! 28-Oct ended a 19.1% 14 day fall
  • 2012: 25-Oct was the post Sandy low after a storm interrupted 20 day 4.5% fall

None

1992: Market kept rallying till election day

Election Peak

  • 1976: Monday, 1 – Nov
  • 1984: Wednesday, 7-Nov
  • 1988 – Thursday, 3 –Nov (pre election) was the end of a small 1.6% 7 day bounce – really the only time the market really fell in to the election
  • 1992: Tuesday, 3-Nov (election day)
  • 2000: Monday, 6-Nov
  • 2008: Tuesday, 4-Nov (election day)
  • 2012 Tuesday, 6-Nov

None1980 – Market bottomed on 31-Oct and rallied all of November

  • 2004 – Market bottomed on 25-Oct and rallied till 2005!

Mid Nov Low and Rally

  • 1976: 10-Nov was the end of a 9 day 5.4% pullback
  • 1984: 19-Nov after a 4.3% 12 day fall
  • 1988: 16-Nov marked the ene dof a 13 day 6.2% fall
  • 1992: 9-Nov was the end of a small 1.4% 6 day pullback
  • 2000: 13-Nov brought the start of a rapid 2 day 5% rally – it was a volatile year!
  • 2008: OPEX Day: 21-Nov was the end of a 17 day 26.5% post election collapse
  • 2012 – OPEX Day: 16-Nov was the end of a 10 day 6.3% fall

None

  • 1980 – Market rallied from 31-Oct to 26-Nov
  • 1996 – Market rallied from 29-Oct to 26-Nov
  • 2004 – Market rallied from 25-Oct to 3-Jan-05

Rally End Date plus year end comment

    • 1976 3-Jan-77
      • Strong persistent rally in to the start of the year from the Nov low
    • 1980: 26-Nov
      • Another sharp fall till 11-Dec and then a rally till 6-Jan
    • 1984: 28-Nov
      • Market pulled back until Thursday, 13-Dec and then was higher in to year end
    • 1988: 7-Dec
      • market was flat really from 7-Dec to the end of the year
    • 1992 – 29-Dec
      • Peaked on Dec 29th and fell in to early Jan
    • 1996: 26-Nov
      • Down from 26-Nov at 762 to 17 Dec at 717 and then higher till 30-Dec
    • 2000: Market fell from 15-Nov to 30-Nov
      • Rally from 30th Nov, ended on Mon, 11-Dec. market then fell to 21-Dec before rally in to end of year
    • 2004: 3-Jan-05
      • Exploded higher on 3 days post election and then steadily move higher till the end of the year
  • 2008: 8-Dec
    • Choppy range with highs on 8th and 17th and lows on 12th and 29th then soared in to year end
  • 2012: 19-Dec
    • Fell till Monday, 31st and then rallied

Election Year – Highs for the year

  • 2012 (Inc): Friday, 14-Sep at 1475 above upper bollo
  • 2008 (New): Tuesday, Jan 2nd at 1472
  • 2004 (Inc): Friday, Dec 31st at 1217
  • 2000 (New): Friday, March 24th at 1552
  • 996 (Inc): Tuesday, 26-Nov at 7621992 (Inc / New): Tuesday, Dec 29th at 442.7
  • 1988 (Inc / New): Monday, 24th of Oct at 284
  • 1984 (Inc): Wednesday, 7-Nov at 170.4
  • 1980 (Inc / New): Wednesday, 26-Nov at 142
  • 1976 (Inc / New): Wednesday 22-Sep at 108.7

Election Year – Lows for the year

  • 2012 (Inc) : Tuesday, 3-Jan-12 at 1259
  • 2008 (New): Opex Friday, Nov 21st at 741
  • 2004 (Inc): Friday, Aug 6th at 1082
  • 2000 (New): Thursday, Dec 21st at 1254
  • 1996 (Inc): Wednesday, 10-Jan-96 at 597.3
  • 1992 (Inc / New): Thursday, April 9th at 394.5
  • 1988 (Inc / New): Thursday, 21-Jan-88 at 240.2
  • 1984 (Inc): Wednesday, July 25th at 147.3
  • 1980 (Inc / New): Thursday, 27-Mar at 99.6
  • 1976 (Inc / New): Monday, Jan 2nd at 89.8

September 2016 Employment and Labor Day HolidayTurning Point Preview: (as of late afternoon on Thursday, Sept 1st)

I am back from my extended vacation. It was a much needed break, and I am glad I was not around to deal with the very slow, grinding ranges of this summer.

This will not be one of my extended previews as there is NO EDGE in the markets right now.

Employment Recently

  • Has been positive at least for the first few days after the employment report
  • August – bottomed Tuesday before and rallied for over a week until Opex Monday
  • July – Rallied really till August 1st
  • June – Rally continued until the MAJOR Top on the Wednesday after
  • May – Bottomed on employment day and rallied sharply till the Wednesday after

September Employment

  • There is a mixed edge and quite dependent on the timing of the holiday. The holiday post the report might be of help for a bottom turn if there is strong selling on the employment day and the Tuesday after.
  • 2015, 2013 and 2012 – the market bottomed before the report and rallied
  • 2014 – the market topped the Thursday before and fell in to the Tuesday of September opex
  • 2011 – Market fell until the Tuesday post employment and post holiday

 

LABOR DAY and Holidays in general

  • Labor Day is an important holiday to be aware of, but it has lost its edge in recent years.
  • The last Labor Day holidays that really represented good turns were when the market had been selling off in 2011 (Tuesday post employment and post holiday) and 2013 (Friday before)
  • The last two holidays in 2016 were just minor tops the day before (July 4th) and the day after (Memorial Day). Prior to that, ALL of the holidays for the past year had been MAJOR turns

 

Current Conditions

  • These are not interesting yet, BUT the SPY MFI (14) at 30 might indicate that the SPX could be setting up for a rally of some sort. The last three times it got near 25 in 2016 there were good rallies (Post Brexit, June opex and May opex)
  • Also, the MDY hourly signals have been EXCELLENT in August. They have all been solid signals and decent winners except for the employment day sell signal.

 

September During Election years – this is the most important thing to be aware of.

  • Since at least 1976, the SPX has had a fairly distinct pattern in September. October and November, particularly after months of August that have been fairly boring – like the market has just experienced
  • I will cover the pattern in more detail right now, but the September pattern is for a rally – potentially of some significance – to end and a decent pullback to begin at some point in September – with the earliest pullback starting on 1-Sep and the latest on 21-Sep

 

  • In 2012, the peak for the year was on Friday, September 14th
  • In 2008, after a fairly dull August, the last rally attempt failed on the Tuesday post Labor Day – Sept 2nd
  • In 2004, the low was made for the year in August and the market started to rally, so there was just a one week pullback in September from the 21st to the 28th
  • In 2000, an all month rally in August terminated on Friday, September 1st and the market fell 15% until October 18th
  • In 1996, the LOW for the year was tested in mid July and then a strong rally began. The market pulled back at the end of August and then there was NO pullback of any significance in September
  • The pattern is similar for 1992 through 1976 with only 1988 not having a September top and pullback

 

I will cover the pattern more in my September preview / election pattern review early next week.

BOTTOM Line

The market has been in an ultra tight range since mid July. This range will change eventually. It always does, but there is currently no edge to determine which direction might be the next move.

  • The low SPY MFI reading is good for the bulls
  • The election pattern should be good for the bears at some point in September
  • The recent consistent success of the MDY hourly traders is good for traders, as it has worked in either direction.
  • Also, the V pattern that once again formed after the post Brexit lows is something that has been seen frequently. These patterns, especially in recent years, have only lasted 4 to 12 weeks. As we are in week 10 without a significant pullback, one should be coming reasonably soon.

 

For now, the best advice is to watch, read, learn, wait and keep your powder dry till the market provides a stronger edge.

ENJOY the last holiday weekend of the summer!

-D

August 2016 Turning Point Preview (as of close of Business on Friday, July 29th , 2016 ):

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.

(Please note – I am on an extended summer North American trip with my three children – I am calling it a trip as it definitely does not qualify as a vacation. This preview is mostly historical information, as I have maintained a deliberate distance from the markets throughout the month of July)

August Perspective

July was definitely an unusual month. The very restricted trading range in the last 11 days and the late employment report meant that there was a rally continuation for both employment and opex. I believe this may have occurred once before since 1998, but it is unusual. Additionally, there was also NO hourly MDY buy signal during the month of July. The last month without an hourly buy signal was Feb 2015. The research generally shows weakness early in the month following strong persistent months like this past July. This was the case in March 2015.

There are not too many months of July that compare to this past July. The closest comparative month since 1998 is July 2013. There was a late June bottom like this year, a small pullback prior to employment and another small pullback post opex. Other than that, the market rallied persistently until topping near the close of the August employment report and then it had a gradual decline for the rest of August 2013 before rallying in the first half of September. While market history does not always repeat, the August 2013 scenario does seem a plausible analog for August 2016.

August

Overall, August needs to be considered a bullish month or a month that provides a good buying opportunity and resolves bullishly. The detail below provides the justification for this view.

The month of August just has two traditional turning points (employment and opex). Some people suggest that the Fed Jackson Hole meeting is also a clear turning time, but I see no evidence of this assertion. There is one quirk regarding the last Tuesday of August & the first Tuesday of September that I will cover later in the month.

August Employment

Consecutive months without employment turns is rare, but it did happen during 2012, 2011 and 2010, so there is no guarantee that there will be an employment turn in August, but August is one month that has always seen employment turns – almost always post employment – since 2007.

August Opex

The July opex period rally continuation was surprising given the price action in early July. Rally continuations for two opex periods in a row is rare. It has occurred 3 times since 1998, so a turn during August opex is likely.

The last 5 August opex turns have all been post opex!

Last Tuesday of August / First Tuesday of September

The last Tuesday of August and / or the First Tuesday of September have been frequent turn times. It is a market quirk that I picked up in my research and the bottom on the first Tuesday of September last year was a good reminder of this market oddity.

I will post more on this later in the month – but see below for further details.

Current Conditions

From a technical perspective, the narrow range since July 14th has removed some of the technical extremes from the SPY / SPX. With a daily MFI (14) of 62 and a daily RSI (9) of 67, the market is elevated, but not at a significant extreme.

Currently, the most extreme thing in the markets is the NARROW range in the SPX – the SPX has now been in the longest range of less than 1% in 45 years. According to a tweet by LPL financial, the SPX closed for an 11th day inside that 1% range which is the first time ever according to their records going back to 1970. (hat tip Wolf of Wall Street)

Bottom Line:

The persistent bull is back. Given the generally bullish resolution to the month of August, the bears will need to be cautious again in August. A decline of some sort is still likely given the lack of an hourly buy signal in July (possibly post employment), but given the history of the month of August, there is a low likelihood of a significant long lasting top forming in August. It does seem amazing that the persistent bull has been able to resurrect itself, but it has returned.

For now, August 2013, where there was an employment top, a decline in to a post August opex bottom, a bounce and then a final bottom during the last week of August seems like a reasonable set of scenarios from someone that has not been following the market that closely in the past month.

There are 10 more days of this extended summer trip – after that, I will be back in action with more regular and hopefully insightful commentary.

ENJOY your summer! That seems to be the best advice given the current narrow range!

-D

August DETAIL and supporting evidence

August Perspective Overall:

The month of August seems to always favor a bullish turn in the market. There have been 6 V shaped bottom and rallies since 1998, 4 BIG slides that provided strong buying opportunities and two strong rallies. The BIG challenge is determining WHEN is the best time to get involved on the long side of the market. There has been at least a 50 pt SPX rally from an August low EVERY YEAR since 2002!

It is an astonishing track record. The real challenge is figuring out WHEN to get involved and that is easier said than done. These buying opportunities are not always fresh lows or complete collapses (like Aug 2015 or Aug 2011). Some times, they are pullbacks in an uptrend like in 2009 or 2012 (that is the challenge). They also may only be sharp trading rallies like in 2011 (bottoms on 9th 22nd and tops on Wed, 17th and Wed, 31st)

First week lows – pre employment (1)

  • 2012 – Pullback low on Thursday, August 2nd pre employment

Post employment and second week lows (8)

  • 2014 Thursday, August 7th post employment
  • 2011 – Tuesday, August 9th US Downgrade collapse low on Tuesday post employment / FOMC Day ** two buying opportunities
  • 2008 Monday post employment, August 4th (day before FOMC) (this was just a sharp 66pt rally one week rally)
  • 2006 – Thursday, Aug 10th – 2 days after FOMC at the 20 day MA
  • 2004 – Friday, August 13th – LOW for the YEAR
  • 2003 – Wednesday, August 6th post employment at 961 – below lower bollo at 80 day MA
  • 2002 – Monday, 5th of August at 833 post employment (topped out on 22-Aug)
  • 1999 – Tuesday, post employment August 10th at 200 day MA and lower bollo after a long slide

Opex Week Lows (2)

  • 2009 – Opex Monday, August 17th – just a pullback below the 20 day MA, but it held and the summer rally continued
  • 2007 – Opex Thursday, August 16th – well below lower bollo

Post Opex Week lows (3)

  • 2015: Monday, post opex August 24th
  • 2011: (higher low) on Monday, post opex, Aug 22nd
  • 2010: Wed post opex, August 25th (low was re-tested but held on Tues, Aug 31st)

Last week of August lows (2)

  • 2013 Wednesday, August 27th
  • 2005 Monday, August 29th at 200 day MA and lower bollo

Only a few of these lows were truly significant.

  • 2004 – LOW for the year
  • 2007 – Low before last rally in to the SIGNIFICANT October top
  • 2010 – Final buying opportunity of the year as an explosive rally started at the end of August
  • 2013 – Low is still in and it kicked off a sharp 100 plus pt rally in to July opex

EXCEPTIONS

2001 – just a slow fall that then cascaded in to September

2000 – Low was on 28-Jul-00 and market rallied all month to 1-Sep-00 and then reversed

1998 – Low was on Tuesday, September 1st

Since 1998, there has never been a sharp rally and collapse (ie. a V Top), though these have frequently been seen in the month of July.

There is also a nice quirk at the end of August / early September where the last Tuesday of August and the first Tuesday of September provide interesting turning points. In 2015, the last Tuesday was the low close from the opex period buying opportunity and the 1st Tuesday in September (pre Labor Day) was the re-trace low after the explosive rally from SPX 1867 to SPX 1993

There have been a few tops in August that have been more significant – 2008 and 2002 – both represented 3 month or longer highs – but it has been the buying opportunities August is best known for.

August Employment

While the highest number of buying opportunities in the month of August has occurred post employment, the actual stats for the employment period (from the Wed before to the Wednesday after) are much more balanced. Since 1998, there have been 9 employment turn tops and 9 employment turn bottoms. Not all of these turns have been significant. In 2015, there was just a sharp bounce from an employment day bottom at 2068 to the Monday post employment high at 2103. This same price action – Friday low and a bounce to the Monday was also seen in 2014. In 2007, there was a 77pt bounce from the Monday after employment to the Wednesday after and then the market fell hard in to opex week.

If the market continues to rally in the next week, then a top on employment Friday or shortly afterwards seems likely.

August Opex and opex overall in 2016

August opex has produced some great buying opportunities (2015, 2011, 2010 and 2007 are great examples), but only a few good more lasting tops (2008 – Opex Monday and 1999 – Wed post opex).

In fact, the lasting tops are far outnumbered by the rally continuations through the opex period with 2014 being the most recent year that there was a persistent rally. That one continued in to early September. Since 1998, there have been 7 rally continuations through at least the Wednesday post opex. (2002 was the only example where the significant top was on the Thursday post opex – Aug 22nd.

Rally continuations for two opex periods in a row essentially is rare. It has occurred 3 times since 1998, so a turn during August opex is likely

Last Tuesday of August / First Tuesday of September

There are special market quirks throughout the year. One that is rarely commented on and does NOT always come true is the frequent turns on either the last Tuesday of August of the first Tuesday of September. Some times it occurs on both Tuesdays (like in 2015 – both lows). There really have only been 5 years since 1998 that neither year provided a good trading opportunity on either one of those Tuesdays and in two of those years (2013 – last Wed of August and 2009 – first Wed of Sept) the pullback lows were very close to either one of those Tuesday.

Again, this quirk generally favors the long side, but some times there are double turns with tops and bottoms. The last time this double turns occurred were in 2007 & 2008.

Clearly, this last Tuesday of August / 1st Tuesday of September does not always occur, but it is something to keep in mind for Tuesday, August 30th and Tuesday, September 6th (which will be post holiday and post employment)

Special Research / Market Thoughts commentary

None this month as I have just not been that close to the market.

 

July 2016 Turning Point and 4th of July Preview (as of close of Business on Wednesday, June 29th, 2016 ):

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.

As I will be on an extended vacation for most of July and August with my children (heading all over the US for a month), my turning point previews will be limited until the end of August. Hopefully, this commentary will provide some continued perspective on what might occur during the month of July.

The month of June has delivered its promise as a real traders market with 4 significant turns with the highs on June 8th and 23rd and the lows on June 16th and 27th. Now it is time to turn our attention to the month of July which generally trades differently than the month of June.

July Perspective

July is rarely the high or low for the year – in fact, other than July 2010 (July 1st bottom), July has not seen any other annual extremes since 1998, BUT, it has seen more than its share of summer highs and lows. The 2nd week of July and the opex period are the two most common periods for these summer extremes. With the July opex period being the MOST important July turning point. In general, (though not in 2000 (June 29th low) & 2007 (June 27th low)), the momentum from late June continues in to at least early July. The market then becomes sufficiently oversold or overbought to reverse this momentum in one of two ways – a V top or bottom for the month or a downward or upward sloped trading range with a sharp intra month reversal. Clearly, the July price action does not need to be this way, but it is generally the way it plays out.

The price action last year in July 2015 was actually a good illustration of the early extreme followed by the sharp reversal and then an opex period top. (Market bottomed on Tuesday, July 7th at 2044 (post holiday and post employment bottom, rallied to Monday, July 20th at 2133 (post opex top), fell to Monday, July 27th at 2064 and had one final rally to Friday, July 31st at 2114.

The price action in 2013 – relentlessly up all month from 24-June post opex low except for a short post opex pullback and 2004 – relentlessly down 30th of June to July 26th are really the only two exceptions since 1998.

Note: July 1st is almost always an up day.

(see below for more details)

4th of July Holiday without employment

There have only been two years since 1998 that the 4th of July holiday was not near the employment report. Interestingly, BOTH of these years 2011 and 2005 saw significant turns on Thursday, July 7th before the employment report.

  • In 2011, the market had rallied for a number of days above the upper bollo band. It topped for the summer at the close on Thursday, July 7th and fell on the employment report the next day.
  • In 2005, the London Bombing occurred and the market gapped down at the open, bottomed and rallied through to the end of the month

Holidays have continued to be turning points in 2016, but there has been no strong edge as to when the turn would occur and the post Memorial Day turn was just a one day selloff.

(see below for more details)

July Employment (Fri the 8th) and late employment reports

The employment report continues to be a consistent turn time. July employment reports are also consistent for turns – though the timing can be both before and after. It all depends on the market conditions. The Wednesday post employment major top in June was the most significant one so far in 2016. A late July employment report is rare with only two since 1998. Both turned on Thursday, July 7th. Interestingly, the employment turns in July between 2010 and 2013 were ALL the day before the employment report.

Late employment reports are somewhat more difficult, though generally they are more bullish as the market has a tendency to rally in to opex week. It really will be dependent on the market conditions nearer to the report.

July Opex

July opex has a VERY strong record for turns. Quite frequently, it is a MAJOR TURN and the start of a sharp rally (2001, 2002, 2006, 2008 and 2010) or fall (1998, 1999, 2000, 2007 and 2015 – also, 2014 but from the Thursday post opex – which is out of the opex period)

The primary turn has been POST opex since 2010. The turns in 2011 (5 day rally), 2013 (3 day pullback) and 2014 (7 day rally) were countertrend moves.

While it is really too early to forecast, a strong move in to the July opex period would most likely produce a longer lasting top or bottom.

Overall, Opex in 2016 has been a very strong, consistent year for turns with bottoms in January (Wed – post opex), May (opex Thurs) and June (opex Thurs) and the tops in February (Mon to Wed post opex), March (Tues – Thurs post opex) and April (MAJOR top on Wed post opex)

FOMC (July 26th & 27th – NO press conference)

The FOMC meeting has shifted around from early to mid August to now late July. In general, non press conference meetings have been less significant, particularly if there is also no employment report during the week.

Overall, there does not seem to be any strong edge now with the July FOMC meeting. It is more dependent on the market conditions AND the end of July / early August dynamics, especially as the meeting is in a ‘no man’s zone week and will not be influenced by the post opex or the pre employment dynamics.

END of July / Early August

The end of July / early August quite frequently is a transition period for the market. Quite frequently, but not always there is a countertrend rally or fall during this period – many times it is a double turn.

(see details below)

Current Conditions

The QQQ was MFI OB for two days and the SPY for one day on the 27th. The SPY is rarely daily MFI (14) OS. It came close to this condition during May opex before the strong rally. The last time SPY was daily MFI OS was on 21-Aug-15. It does not happen that often.

With the strong two day bounce, there is nothing technically remarkable on a daily basis. The market is just back in the midpoint of the last week’s range and also in the middle of the April – June range

Bottom Line:

If I was not going on holiday starting early next week, I would be waiting until Tuesday, July 5th to publish this preview as the massive two day fall post the Brexit vote and the sharp two day rally actually make overall commentary much more difficult as the market is now back in the middle of its April – June range.

If the markets continue to rally in to next week:

  • Then it all depends on what levels they hit and the technical conditions, they could turn on Thursday July 7th like in 2011
  • or due to the late employment report and the general dynamics of trends entering the month of July, the market could then continue squeezing higher in to opex and again depending on technical conditions and levels they could top – most likely post opex. June / July in 2000, 2007 and to a certain extent 2013 are good examples of potential analogs for this scenario.

If the markets do turn lower later this week and test or make a lower low below SPX 1992

  • Then it is highly likely there will be a post holiday, post employment bottom and a rally in to an opex though more likely post opex top
  • This is what happened in 2015 – the market bottomed on Tuesday, June 29th below the lower bollo, rallied to the open on Thursday, July 2nd (employment day) and then fell in to a lower low bottom on the Tuesday, post holiday / post employment.

Overall, there have been just two important bottoms in the June quarter end week since 1998 (2000 & 2007) both of those years saw rallies in to July opex and MAJOR tops during July opex week.

ENJOY the long holiday weekend. I will be back with occasional commentary when my travel schedule allows.

-D

JULY DETAIL and supporting evidence

Current Conditions:

The QQQ was MFI OB for two days and the SPY for one day on the 27th. The SPY is rarely daily MFI (14) OS. It came close to this condition during May opex before the strong rally. The last time SPY was daily MFI OS was on 21-Aug-15. It does not happen that often.

With the strong two day bounce, there is nothing technically remarkable on a daily basis. The market is just back in the midpoint of the last week’s range and also in the middle of the April – June range.

While the market is hourly OB, that is a condition that changes on a daily basis, so it is not useful for predicting what might happen with the holiday.

July Perspective Overall:

July is rarely the high or low for the year – in fact, other than July 2010 (July 1st bottom), July has not seen any other annual extremes since 1998, BUT, it has seen more than its share of summer highs and lows. The 2nd week of July and the opex period are the two most common periods for these summer extremes. With the July opex period being the MOST important July turning point. In general, (though not in 2000 (June 29th low) & 2007 (June 27th low)), the momentum from June continues in to at least early July. The market then becomes sufficiently oversold or overbought to reverse this momentum in one of two ways:

  • a V top or bottom for the month or
  • a downward or upward sloped trading range with a sharp intra month reversal.

Clearly, the July price action does not need to be this way, but it is generally the way it plays out.

The price action last year in July 2015 was actually a good illustration of the early extreme followed by the sharp reversal and then an opex period top. (Market bottomed on Tuesday, July 7th at 2044 (post holiday and post employment bottom, rallied to Monday, July 20th at 2133 (post opex top), fell to Monday, July 27th at 2064 and had one final rally to Friday, July 31st at 2114.

JULY V Shaped Tops (4) since 1998

  • 2007 Strong rally from June 27th to Opex Monday, July 16th and then down in to August
  • 2000 Rallied from 29th of June to Opex Monday, the 17th and then fell sharply to Friday, July 28th
  • 1999 – Rallied all month to Monday, post opex, the 19th and then fell to lower bollo
  • 1998 – Rallied all month to Monday post opex, July 20th and then down to lower bollo on 28th and then lower still

July V shaped Bottoms (6) since 1998

  • 2010 – Another V bottom with the low on the 1st and then two pullbacks on the way back up (started on 13th and 27th)
  • 2009 Classic July V bottom price action – only difference was the bottom was on 8th of July and not during opex
  • 2008 – V Bottom with lows on 15th and one pullback on the way back up from 23rd to 28th
  • 2006 A V Bottom with a high on the 3rd, a low on the 18th and then a strong rally
  • 2005 – London Bombing spike low on Wednesday, July 7th and then higher the rest of the month
  • 2002 V Shaped with sharp FALL to Wednesday, the 24th (post opex) and then rallied

July Downward or Upward sloped trading ranges (6) since 1998

  • 2015 – Upward sloped trading range with lows on 7th and 27th and highs on 20th and 31st
  • 2014 Slightly upward sloped trading range with highs on 3rd and 21st and low on 17th and then range broke down
  • 2012 Upward sloped trading range with tops on 3rd, 19th and 30th and bottoms on 12th and 24th
  • 2011 Downward sloped Trading Range – Sharp Rally till Thursday, July 7th – down to 18th and back to 22nd to test the highs and then down hard
  • 2003 Fairly listless trading range up from 1st to the 14th and then did nothing
  • 2001 Downward sloping trading range with tops on 2nd and 19th and bottoms on 11th and 24th

July TREND Years (2)

  • 2013 Strong rally with one slight post opex pullback
  • 2004 – Slid from June 30th to July 26th

4th of July Holiday without employment

There have only been two years since 1998 that the 4th of July holiday was not near the employment report. Interestingly, BOTH of these years 2011 and 2005 saw significant turns on Thursday, July 7th before the employment report.

  • In 2011, the market had rallied for a number of days above the upper bollo band. It topped for the summer at the close on Thursday, July 7th and fell on the employment report the next day.
  • In 2005, the London Bombing occurred and the market gapped down at the open, bottomed and rallied through to the end of the month

Holidays have continued to be turning points in 2016, but there has been no strong edge as to when the turn would occur and the post Memorial Day turn was just a one day selloff.

July 4th Holiday turns

  • 2007 – No turn – rally continued until July 9th and then there was a minor top
  • 2008 – minor bottom and bounce on day after for 2 days and 38pts during a STEEP downtrend
  • 2009 – MAJOR bottom post holiday / post employment on Wednesday after – 3 days post holiday / employment
  • 2010 – MAJOR BOTTOM on Thursday, July 1st 2 days before holiday
  • 2011: Super OB and the market kept going till 3 days after, but then it formed THE MAJOR SUMMER TOP!
  • 2012: MAJOR TOP – Super OB before the employment report – topped at the close on the Tuesday before the holiday – though it was safer to sell on the Thursday before employment post holiday. Fell hard for a week and 52pts
  • 2013: MAJOR BOTTOM – but it would have been a tough one to play. Like in 2011 and 2012, we turned the day before the employment report. In 2013, there was a brief 3 day pullback after soaring from the post June opex low and this pre holiday low was the last chance to get in before the market screamed higher over the rest of July
  • 2014 – minor top on employment day (the day before the holiday– closed at the highs before the long weekend and then fell 32 pts till the following Thursday – the lower bollo band was not hit prior to the correction ending
  • 2015: MAJOR BOTTOM on Tuesday after post employment –Very volatile due to Greece – BIG gap down on the Monday, but a rally, then a strong sell off on the Tuesday and an 11:30am bottom. Market then rallied until post opex

July Employment and late employment reports

Late employment reports – There are ONLY TWO instances – Jan 2009 & Jan 2016 – where the market fell through a late employment report and did not bottom until post opex. (Though in Jan 2016 there was a good Monday to Wednesday bounce) Otherwise there are really only two outcomes seen in the late employment reports since 2007, as we rallied in to every report with the exception of the delayed report in Nov 2013.

  • The market has rallied in to the report and topped on the employment day (Mar 2007, May 2009, July 2011 (pre mkt)) and Jan 2014 or the Monday after (Jan 2010) (especially when hitting the upper bollo band) and pulled back during opex
  • The market rallied through the report and in to opex and topped between Opex Thursday (March 2013), the Monday post opex (Oct 2010, March 2012 and Nov 2013) or in the latest instance, the Wednesday post opex (May 2015 – the current all time high)
  • July employment – LOTS of turns occurring – in fact, we have had one every year since 2007 with many of them being major ones. Quite unusually in four of the last six years (2010, 2011, 2012 and 2013) the market has turned the day before the report
  • 2007: Minor top on the Monday after
  • 2008: Minor bottom on the Friday amidst relentless selling that did not stop until opex week
  • 2009: A MAJOR bottom post holiday on the Wednesday after – these were the last lows of 2009
  • 2010: A MAJOR BOTTOM on the Thursday before and these were the last lows of the year as well
  • 2011: Got VERY OB pre employment after a relentless rally and we had the SUMMER TOP on the Thursday before
  • 2012: A similarly relentless rally as in 2011 and a MAJOR top on the Thursday before, but this move only lasted 6 days
  • 2013: (post holiday): MAJOR BOTTOM pre holiday – after a two day 22pt pullback, the market rallied hard on the employment report and rallied for most of the rest of July
  • 2014: (pre holiday) – minor top – closed at the highs on employment day after a steady, persistent rally in June – market pulled back 32pts until the following Thursday
  • 2015: (early report Thursday pre holiday) – MAJOR BOTTOM on Tuesday post holiday / post employment Sell off from post June opex top stopped initially on Monday June 29th and the market rallied a bit in to the open of the employment report

July Opex and opex overall in 2016

July opex has a STRONG record for turns (many of them MAJOR) – only 2009 missed one since 2007 and that is because it turned strongly post holiday / post employment the previous week. Before 2007, there were MAJOR bottoms in 2006, 2002 and 2001 and MAJOR tops in 2000, 1999 & 1998.

  • 2007 Major Summer top on Opex Thurs
  • 2008 Major Bottom on opex Tuesday as we had been sliding for weeks and were very oversold
  • 2009: Made a very strong bottom the week before and just rallied the rest of July with opex having ZERO impact
  • 2010 Major Bottom – Tues after at opex
  • 2011 Major bottom on Monday post opex and a strong 3 day 51 pt bounce before the summer slide resumed
  • 2012 – Was a MAJOR TOP on opex Thursday and a MAJOR bottom on the Tuesday post opex – very volatile
  • 2013 – Just a minor top on the Wednesday after opex, which was a surprise as we were up relentlessly all of July, but the market only pulled back for 3 days and 25 pts before topping on August employment day
  • 2014 – Minor bottom on Opex Thursday – a strange week with a Wednesday high and then a sharp move lower in to a Thursday low and then a bounce for a week – topped on Thursday post opex and fell hard
  • 2015 – MAJOR TOP on the Monday post opex (July 20th) and a sharp 69pt drop to the 200 day MA on July 27th

Opex in 2016 has been a very strong, consistent year for turns with bottoms in January (Wed – post opex), May (opex Thurs) and June (opex Thurs) and the tops in February (Mon to Wed post opex), March (Tues – Thurs post opex) and April (MAJOR top on Wed post opex)

FOMC (July 26th & 27th – NO press conference)

The FOMC meeting has shifted around from early to mid August to now late July. In general, non press conference meetings have been less significant, particularly if there is also no employment report during the week.

Overall, there does not seem to be any strong edge now with the July FOMC meeting. It is more dependent on the market conditions AND the end of July / early August dynamics.

  • 2012: (31-Jul – Aug 1st – pre employment – topped on the Monday as it was VERY OB after a huge 6 day post opex bounce and then fell through FOMC till the day after where it bottomed and bounced – different dynamics than usual possibly due to the date change
  • 2013 – (30-31-Jul – pre employment MAJOR TOP After a relentless rally that barely paused all of July, the market continued to run post FOMC in to the employment day, but topped near the close and fell for the whole month of August
  • 2014 – (Jul 29th – 30th – pre employment) minor bottom on employment day – two days after FOMC. Market had peaked on the Thursday, the week before and had pulled back a bit. The market was unchanged on Fed day, but then fell sharply (-39pts) the day after Fed day.
  • 2015 (July 28th – 29th) – Bottomed on Monday before and rallied 52 pts to the Friday after

END of July / Early August

The end of July / early August quite frequently is a transition period for the market. Quite frequently, but not always there is a countertrend rally or fall during this period – many times it is a double turn.

  • 2015 Double turn – minor bottomed day before FOMC just below 200 day MA at 2064 on Monday, July 27th and bounced till 31-Jul at 2114 before declining again
  • 2014 – Double Turn Market rallied to Thursday, July 24th at 1991 – and rolled over – minor bottom on employment Day Friday, August 1st, but bounce just lasted to the 4th and then final corrective low was on Thursday, August 8th
  • 2013 Rally stalled from 23th to 26th and then continued until MAJOR TOP 2 days after on Friday, August 2nd at 1710
  • 2012 – Double Turn – Market peaked on Monday, July 30th and pulled back to Thursday August 2nd (FOMC week)
  • 2010 Double Turn- Market pulled back from Tuesday, July 27th to Friday, the 30th and then rallied again to Wed, Aug 4th before stalling and falling from Monday, the 9th
  • 2009 – brief pullback from Mon, 27th to Wed 29th and then more of a stall and pullback on Friday, August 7th
  • 2008 : Post opex pullback ended on Monday, July 28th at 1234 and rally continued to 11-Aug
  • 2007 After July opex top – sharp bounces on Wednesday, the 1st and then Monday, the 6th of August

Special Research / Market Thoughts commentary

While I was feeling a bit apologetic for my June opex commentary when there was the strong opex Thursday bottom https://pugsma.wordpress.com/denalis-turning-points-2/denalis-turning-points-2016/ and the one week rally, clearly the BREXIT vote helped validate my caution somewhat. In that commentary I wrote:

  • For now, I will be steering clear of the long side until the market is sufficiently oversold below the lower daily bollo. If it does not happen and the market bottoms before then, so be it, but moves like were seen in August of 2015 (Extreme Monday post opex bottom) or October 2014  (a bottom 48pts below the lower daily bollo) show that opex can produce bottoms far lower than one expects and with the Brexit vote on Thursday, the event risk is very high, so the technical conditions should be fairly extreme for one to be involved unless the risk is managed in a very disciplined fashion.

So far the current bottom was 40pts below the lower daily bollo.

Since at least 1998, there has never been such an extreme two day slide in the market in June / July like the market just witnessed, but there have been a few late June / early July slides below the lower bollo band – here is what happened next:

  • July 2015 – Bottomed on July 7th 11 pts below lower bollo and rallied sharply to Monday, July 20th post opex
  • June 2013 – SHARP 4 day fall that bottomed on Monday, June 24th post opex 23pts below lower bollo. Rally continued almost uninterrupted until Friday, August 2nd
  • July 2010 – 9 trading day slide ended on Thursday, July 1st 13pts below lower bollo – initial sharp rally ended on opex Thursday, July 15th
  • July 2009 – two corrections ended below lower bollo – one on Tuesday, 23-June (8pts) and there was a one week bounce and Wed, Jul 8th (lower low 11 pts below) – this was the last low and the market rallied till August employment
  • June 2007 – bottomed on June 27th, 7pts below the lower bollo and rallied in to a July opex top above the upper bollo

Overall, except for just the one week rally in 2009 and then the lower low, history seems to suggest the current rally should last for at least a week if not until July opex, BUT GIVEN the HUGE swings since June 23rd, there really is no historical precedence that this market can be compared to.

 

QUAD Opex / POST FOMC preview for June 2016  (as of close of business on Wednesday, June 15th, 2016 ):

The move up from the May opex Thursday low was surprisingly relentless as has the move down from last Wednesday’s post employment top. The price action has definitely been unusual with:

  • The large down day on the Friday before opex week – given the current price action the odds favor a post opex low
  • The opex Monday hourly Buy Signal On MDY showed 8 out of 11 instances with late in the opex period bottoms
  • The price action on FOMC day was one of the most disappointing that the market has seen since 2007. The only time a Quad opex week saw action like that was in Sep 2015 (MAJOR TOP that day – not possible this opex) and Dec 2011 – Major Bottom at the close on Monday post opex

In the special research section, I cover the Q2 corrections. The BIG question is whether the post April opex to May opex correction was the usual Q2 correction or whether the market is undergoing a correction more like June to July 2009 where there was a one month correction ONCE there had been new highs in June.    Overall, it must be remembered that the last year June saw the high for the year was in 1948 – so the historical odds still favor a higher high later in the year, but we must focus on this correction first.

Important 2016 Price Action Reminders

  • Thursdays have been an important day for market bottoms in 2016 with the Feb low (the 11th), the two March lows (10th & 24th), the first April low (7th) and the May opex low (19th) all occurring on Thursday and all produced decent 50plus point rallies
  • The close of the week has continued to see solid end of week rallies with last Friday’s 6pt rally being fairly typical of what has been seen this year. What was unusual is the market failing to follow through on that rally on the Monday.
  • Lastly, it should be noted that ALL but two of the turns this year have been post event – with the Thursday before Good Friday and the May opex Thursday turn being the only turns pre the event. That makes it 4 post opex turns and 1 during opex week turn.
  • There have been 14 turns since 1998 in the 4th week of June (which is next week)

Bottom Line

Overall, the risk is high right now and the markets will be volatile and dangerous in both directions until the aftermath of the BREXIT vote is clear. Still, even with Brexit in mind, there will be a point when technical conditions will favor the long side.

  • It could be opex Thursday as that has been a bottom day for the markets, but it is less likely given the gap down on opex Thursday (see research below)
  • It could be opex day, if the markets get sufficiently oversold on opex day – but again that is a lesser probability given the few instances of bottoms on Quad opex Friday
  • Given that most (but certainly not all) Quad opex bottoms have occurred with lows at or below the lower bollo band, the highest probability play is to look for an emotional oversold situation with the market well below the lower daily bollo band that is currently at SPX 2040. Just looking at recent Quad opex weeks – in Dec 2015, the market bottomed 30pts below the lower daily bollo. In Dec 2014, the market bottomed 23pts below the lower daily bollo. In June 2013, the market bottomed on the Monday post opex 23pts below the lower daily bollo.
  • Overall, an extreme emotional bottom next week post opex and pre Brexit vote will possibly be the high risk / high reward play.

There has only been one QUAD opex week – June 2008 – that heralded a relentless slide in to July and even that opex period saw a strong bounce in to opex week and a top on Opex Tuesday. Still, it is a reminder that the markets can get far more extreme on the downside than one can possibly imagine.

For now, I will be steering clear of the long side until the market is sufficiently oversold below the lower daily bollo. If it does not happen and the market bottoms before then, so be it, but moves like were seen in August of 2015 (Extreme Monday post opex bottom) or October 2014  (a bottom 48pts below the lower daily bollo) show that opex can produce bottoms far lower than one expects and with the Brexit vote on Thursday, the event risk is very high, so the technical conditions should be fairly extreme for one to be involved unless the risk is managed in a very disciplined fashion.

Will be back with more historical insights when I believe they might help narrow the possibilities.

-D

Detailed Research

Current Conditions                                       (as of close of business on Wednesday, June 15th, 2016 )

With a daily RSI of 39 and a daily stochastic of 12, the SPY / SPX is nearing the conditions for a possible bottom, but the market can clearly go lower – especially as MANY of the Quad opex bottoms saw a low at or below the lower daily bollo which is now at SPX 2040.

GAP DOWN on Opex Thursday

  • Fading this gap rarely works – Twice there has been a Thursday low from this gap down with both lows occurring late in the morning (Jan 11 and May 14). There was also the Oct 2014 extreme Wednesday bottom that was re-tested on Opex Thursday. Otherwise look for lows on the Friday (Nov 09, Dec 09) or the next week – May 10 (Tues), Aug 11 (Mon) , Sep 12 (Wed), Jun 13 (Mon) and Aug 13 (Wed) – expect volatility finding the bottom

Hourly Buy on Opex Monday    (Abbreviated copy of what was posted on 14-June)

Rare signal showed up yesterday – an opex Monday hourly buy signal – this is only the 12th signal in over 7 years of tracking these signals (close to 90 opex weeks).  From a primary turn signal, the outcome is BINARY – post opex MAJOR top (3 times) or a bottom (8 times) later in opex week or post opex.

  • 3 out of the 11 signals have seen good rallies from the Monday as Opex Monday was the low for each opex week and then MAJOR tops between opex day and the Tuesday post opex. Last time we saw an opex Monday hourly buy signal was last year, June 15, with a Monday post opex top. Market bottomed on opex Monday and ran higher by a bit less than 60 SPY pts. Other two times were Jan 14 – a choppy opex week and a major top on the Tuesday post opex and post holiday and Sept 14 – an opex Monday low and a MAJOR top on opex Friday.

The other 8 instances saw Bottoms.

  • There were 5 bottoms during opex week – Signals in Apr 13 (Thurs bottom),  Oct 14 (Wed), Dec 14 (Tues) and Jan 15 (Fri) all indicated MAJOR bottoms later in opex week.  May 12 was an opex day minor bottom.

There were 3 Post opex Bottoms –   May 11 – Wed post opex minor bottom,  April 11 – Monday post opex & Jul 11 – Mon post opex

BIG DOWN on the Friday before opex week

I provided this research last Friday. In it I noted that the current technical situation was quite different as highs for the year had been hit on the Wednesday before, so the market was still quite technically strong – which had not been the case in any other instance.

Overall, there had been 29 instances where the market was down more than 15pts on the Friday before opex week.  Now that the market has continued lower, there is some additional data.  In 11 of those 29 instances the market bottomed from the Thursday of opex week to the Wednesday post opex. In 4 of those instances (Nov 08, Jan 15 – opex day and Jun 11 and May 16 – Opex Thursday) the bottom was during opex week and in the other 7 instances the low was post opex

June opex Detail

  • MAJOR turns in almost every year – 2007 (opex day), 2008 (Tues), 2010 (Mon after) and 2011 (Thurs), 2012 (Tues after / pre FOMC), 2013 (Monday after) and 2015 (Monday after)
  • 2009 there was a decent Tuesday after bounce for 8 days and 41 pts
  • Opex Tuesday is quite frequently one of the extremes for the week
  • One other June opex quirk to remember – we almost ALWAYS rally in to Friday’s open from Thursday’s close – UNLESS there has been a very strong rally on the Thursday – then it might not occur (it is actually a quad opex edge, but most evident in March and June)
  • -June opex has produced good buying opportunities in 4 years (2006 – low, 2009 – bounce, 2011 – low and 2013 – low) and late / post opex selling opportunities in 5 years (2007 – opex day, 2010 – post, 2012 – post and 2014 – post, 2015-post) 2008 was just a fairly relentlessly down month with just one small bounce in to opex.

 

  • Definitely watch the Monday and Tuesday after for potential turns.
    1. 2007: MAJOR TOP on Opex Day – fell for 12 days and 56pts before heading higher in to the Major July top
    2. 2008: Major top on opex Tuesday – was trending lower in to opex and then had a good 4 day bounce in to opex, but that was it and a long slide in to July
    3. 2009: Minor Bottom pre FOMC on the Tuesday after and then a one week bounce
    4. 2010: Against the trend, rallied all week and then MAJOR topped on the Monday after and fell to its MAJOR Low in early July
    5. 2011: MAJOR Bottom on the Thursday of opex week – was weak all month and then bounced strongly in to July employment – BUT it should be noted that the strong bounce initially stopped on the Tuesday after pre FOMC and then the low was re-tested, but held and then we soared
    6. 2012 A very choppy week that ended strongly with a MAJOR TOP on the Tuesday after that lasted for 6 days and 54 pts before surging in to July
    7. 2013; MAJOR BOTTOM – a volatile week with a strong rally in to opex Tuesday (the day before the FOMC) we then major topped and fell hard until the Monday after opex where we major bottomed and rallied strongly the whole month of July
    8. 2014: minor top on Tuesday post opex – strong market all month – FOMC during the week had no impact and market kept pushing higher till the Tuesday post opex and then had a short 24pt pullback
    9. 2015 – MAJOR TOP on Monday post opex Fell in to an Opex Monday double bottom low and then rallied sharply to test the May highs – test failed and Market fell 95pts to July 7th

QUAD OPEX WEEKS

QUAD  Witch option expiry has a BAD reputation – but it is actually a great time for traders. Interestingly, it is much more likely for QUAD opex to produce a MAJOR turn (move of greater than 50 SPX points) than a minor turn. Amazingly, there is an equal split between TOPS and BOTTOMS and turns of the major variety outnumber minor turns by close to 3 to 1.  In 2015, ALL of the QUAD Opex weeks produced Major turns.  March and June were tops that occurred on the Monday post opex, September occurred on opex Thursday (FOMC Day) and December was a volatile week with the Major Turn being the bottom on Opex Monday, but there were significant turns also on opex Thursday (high) and opex Friday (low at the close)

Looking at the bottoms,

  • except for the Bear Stearns Monday bottom in March 08, the pre FOMC Tuesday bottom in Dec 2014 and the pre FOMC bottom in Dec 2015, they have all occurred from the Wednesday of opex week (twice when there was extreme selling related to issues in Asia (Mar 07 and Mar 11) to the Wednesday after opex (just once – Sep 2012). Last one was the spike low post FOMC in Dec 2013.
  • The Monday after opex is slightly favoured as the most likely day for a low, particularly if it is a post opex pullback in a bullish market (ie March 2010 when we just had a minor Wed post FOMC top to Monday after opex pullback)
  • On a pure price basis (as SPY goes ex div on the Friday) – all of these lows except for one, have seen SPY down on opex day but except for March 09 (down 17), there have not been any huge losses on opex day.
  • Many – but not all of the bottoms occurred below the lower daily bollo
  • Generally, but not always, the high of the week is Monday or Tuesday. Also, at least one, if not multiple hourly buy signals will indicate that the low is near.
  • The bounces out of Quad opex bottoms are almost always significant with 42 pts being the smallest in price and 6 days being the shortest in duration
  • Recent examples:
    • June 2013 a MAJOR Bottom on the Monday post opex after a Tuesday opex top pre FOMC
    • Dec 2013: FOMC on the Wednesday and we spiked down for 1 minute to the low for the month and then we were off – quite a quick MAJOR BOTTOM.
    • Dec 2014: MAJOR Bottom on Opex Tuesday and rally till Dec 29th
    • Dec 2015: MAJOR Bottom on Opex Monday and an 85pt rally to Thursday’s open

(Detail since 2007 can be provided upon request)

Post June FOMC during opex week analysis

There have only been a few FOMC days that were up at least 10 SPX pts during the day, but then closed down. Since 2007, it has occurred 11 times. Market still moved higher in 4 instances June 07 (bottom the previous day), April 08 (bottom that day), Oct 08 (bottom 2 days before) and Jan 16 – topped out 3 days later)

Such price action has occurred twice during opex week with the FOMC – Dec 11 (Major Bottom at the close on Monday post opex) and Sep 15 – MAJOR TOP on FOMC Day – Opex Thursday.

 June Reminders

  • The last time the month of June saw the high for the year was in 1948, which makes it historically likely that there will be a high above 2120 some time from July 1st onwards
  • Per the June preview, the 2nd week of June was important for turns. So now, it is important to remember about the 4th week of June. In the June preview it was noted:

4th week of June, quarter end and early July

Finally, there has been a lot of turn activity during the 4th week of June since 1998 – which should be understandable as it is post opex and for many years, it was also the week that contained the FOMC meeting.

There have been 14 turns since 1998 (2014 was a double turn) in the 4th week of June, it reinforces the point that June tends to be more of a trading month than a trending month.

SPECIAL Research

The rally out of the May opex low was stronger than expected. The big question is whether the post April opex to May opex correction was the usual spring correction that lasts generally a minimum of 4 weeks (The 26 day correction in 2007 was the shortest since 2003) or whether there is now an additional correction coming now that new highs have been made for the year.

There are two years that had new highs for the year occur in June either side of employment (2007 & 2009) and one (2003) that had a short correction that started in June opex

Overall, there have been 14 years since 1998 that had a significant correction from a Q2 high. Three of the other four years made significant bottoms in April – at least below the March lows (2000, 2005 & 2014). While 2002 was just a relentless slide from the March highs

The shortest Q2 correction was in 2003 which lasted 14 days and was 5.2% (53pts). The two other corrections that started in June were as follows:

2007:   26 days from 1-June (employment) to 27-June and 57 pts or 3.7%

2009 29 days from 9-June to 8-July of 78pts of 8.2% .  June 2009 did have  a bounce from the Tuesday post opex for a week in to early July before sliding lower

All of the other corrections since 2004 lasted at least a  solid month

 

June 2016 Turning Point and Employment Preview (as of close of Business on   Friday, June 3rd, 2016 )

 The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.

May followed its historical tendencies for a downward or upward sloping trading range (in the case of May 2016 – downward sloping) that did not resolve till post opex with one potentially important exception – the opex bottom and turn was on opex Thursday – which is a day earlier than normal.  As for June, we will just have to see how the month progresses. In many ways, it is a more challenging one to figure out exactly when the market might turn given that it tends to turn quite frequently.

June Perspective

The month of June is never a particularly straightforward month as it tends to have quite a few short term twists and turns. In the detail section, I have provided a lot of the supporting evidence for the following key points about the month of June:

  • JUNE has never been the HIGH for the year since at least 1950. June has been the low for the year just 4 times (June 62, June 65, June 06 & June 12)
  • JUNE is a transitional month between May opex extremes and early July – even as late as July opex extremes
  • JUNE is a month that produces quite a few substantial trading turns, but essentially, it is more of a trader’s market than a trend follower’s market
    • -June is really the ultimate trader’s month – as there are almost always at least 3 solid turns, if not 4. The two recent exceptions were 2014 – that just had 2 small turns and 2013 that had 5 turns
  • While in some years, the May opex bottom would suggest there would be more weakness in June, the strength of the rally post Memorial Day has ended the similarities to years such as 2010, 2011 & 2012 that saw more weakness in early June.

June Employment

Per the employment preview, June employment is an extremely consistent month for turns. Given the rally on Friday, the certainty and timing of a top turn and pullback is still in doubt. It could have occurred on Thursday or it could occur post employment.

 If the strength continues in to new highs for June post employment, the likely scenario is just a small pullback in to the end of the week – probably just the Thursday – but if the strength continues past Monday or Tuesday, other scenarios will need to be considered

2nd Week of June

2nd Week of June is always important for turns – frequently it is double turns as the Thursday before opex week has seen quite a few important turns since 2008.

 June Opex / FOMC

The last three years have been the only 3 years since 1998 that the FOMC meeting has been during June opex week. The general tendency for Quad opex weeks that contain an FOMC meeting (especially in March, June & Sept) is for the primary turn to be post the FOMC meeting. The last 3 years have all seen primary turns post opex. Two of the years (2013 and 2015) saw Double Turns while 2014 just saw a minor top post opex. For now, the only tendency one can continue to expect is a post FOMC – likely post opex as well – turn:

 4th week of June, quarter end and early July

Finally, there has been a lot of turn activity during the 4th week of June since 1998 – which should be understandable as it is post opex and for many years, it was also the week that contained the FOMC meeting.

I will cover this period in more detail later in the month, but as there have been 14 turns since 1998 (2014 was a double turn) in the 4th week of June, it reinforces the point that June tends to be more of a trading month than a trending month.

 Current Conditions

  • The pullback on Friday re-set the SPY technical conditions.
  • The MID is still daily MFI OB which should result in a pullback of some significance
  • There was NO 10 min buy signal for MDY on Friday, so a new extreme for longest period without a 10 min buy signal will be set on Monday. Per that study, 9 of 15 instances saw fairly immediate drops, 4 times there was just very short team weakness and twice, there was eventually big drops, but it did not occur until after January opex.

Bottom Line:

The bulls have been in charge since February 11th.  A new high for the SPX above 2111 in June will likely mean the market has even higher highs later in the year. Still, the June tendency for lots of turns – essentially turns every week is one that must expect. In the very short term, it is likely:

  • That there will be a top and pullback for at least a few days this week
  • This Thursday, June 9th will then be a key day to watch for a turn, particularly given the market’s Thursday pre opex turns in March and April.
  • The primary turn for June opex will be post FOMC and generally is post opex.

The long period without a 10 min buy signal study is the one point that really invites caution, particularly given that it was spot on in April.

Ever interesting, more as the month progresses,

-D

JUNE DETAIL and supporting evidence

June Overall:

JUNE has never been the HIGH for the year since at least 1950. June has been the low for the year just 4 times (June 62, June 65, June 06 & June 12). Recent examples:

  • 2015: High for the year was in May. The high was tested post opex in June, but not exceeded
  • 2014: New high for the year was made in June and the market proceeded to make higher highs later in the year
  • 2012: Low for the year in June
  • 2009: New highs for the year in early June – market topped on June 9th and traded down for a new month, but then saw new highs for the year in late July and onwards
  • 2007 – New highs for the year in early June. Market topped on 1-June and fell till June 27th, but subsequently rallied to new highs for the year in July and October

JUNE is a transitional month between May opex extremes and early July – even as late as July opex extremes

  • Given the rarity of market extremes in the month of June, it is helpful to in many ways view June as a transitional month between May opex and early July to as late as July opex (and in the case of 2013 – August employment).
  • I can not explain this late May-June-July tendency, but it exists. The best way to explain is to review how the market has traded in the last few years during this time of year:
    • 2015 – High for the year post May opex. Market stayed in the trading range in June with a late break in to a low in the second week of July. There was one last rally attempt during the July opex period and then the market rolled over
    • 2014 – The market surged post Memorial Day and stayed in an upward sloping trading range until topping post July opex and correcting briefly, but sharply
    • 2013 – Market topped for the year post May opex and fell in to the Major bottom post June opex before surging in to July opex and eventually August employment before rolling over
    • 2011 – Market briefly bottomed post May opex and rallied a bit before rolling over and falling sharply in to June opex. Market had one final surge in to the 2nd week of July before really turning lower
    • 2010 – Market topped in late April – had a good bounce post May opex and an even better bounce post June employment in to June opex, but then topped and fell to the low of the year in early July.
    • 2008 – Market topped post May opex and after a brief bounce at the beginning of June, it fell relentlessly until July opex

JUNE is a month that produces quite a few significant turns. Essentially, it is more of a trader’s market than a trend follower’s market

-June is really the ultimate trader’s month – as there are almost always at least 3 solid turns, if not 4. The two recent exceptions were 2014 – that just had 2 small turns and 2013 that had 5 turns

    • 2015 – 3 turns – Bottomed on the Tuesday post employment, rallied for 2 days and 43pts – pulled back 42pts in 2 days till opex Monday and then topped on the Monday post opex and fell 85 pts in to the 2nd week of July
    • 2014 – just 2 turns – minor top on Monday post employment (3 day 29pt pullback) and minor top on Tuesday post opex (2 day 24pt pullback)
    • 2013 – 5 turns – very volatile month – Thursday before employment low, Tuesday after top, Thursday before opex low, Opex Tuesday (pre FOMC top) and a final major low on Monday post opex at 1560
    • 2012: 3 turns – Major bottom on Tuesday post employment, which was the last low of the year at 1267 – strong rally to the Tuesday post opex and then a pullback till Monday, the 25th and the rally resumed
    • 2011 – 3 turns – 1st of June MAJOR TOP and then a slide all the way till opex Thursday which was the low for the month, a minor top pre FOMC and then a low day after FOMC and a rally in to July
    • 2010 4 turns – Day before employment top and Tuesday after employment low, counter trend rally all of opex until MAJOR TOP on Monday post opex (pre FOMC) and then the summer bottom on 1-July
    • 2009 – 3 turns – Post employment top, post opex low and end of Month – 1st of July high
    • 2008 – 3 turns – Employment top, Thursday before opex low and opex Tuesday top then a long slide in to July
    • 2007 – 4 turns – employment top, Friday before opex low, opex day top, late June lowThe month of June has TWICE had big slides: 2002 & 2008 May opex Bottoms – what does it mean for June?
    • -The recent opex Thursday bottom in June was the 10th May opex bottom since 1998   (in () is what happened during May opex)
    • It has had steady to strong rallies – THREE times – 1998, 2012 & 2014
  1. 2014 (Opex Thursday – not the low for the month) – Market rallied persistently until early July with just small pullbacks
  2. 2012 (Opex Friday – low for the month) – Brief bounce ended post Memorial Day and market bottomed for the year post May employment
  3. 2011 (Wednesday post opex – low for the month) – Brief bounce ended on May 31st and market fell steadily in to an opex Thursday bottom
  4. 2010 (Tuesday post opex) – Brief bounce ended in early June, market then fell to a post employment low before rallying persistently. SPX topped post June opex and fell to the low for the year in early July
  5. 2009 (Opex Friday – not the low for the month) – Bounced until post June employment and then fell ultimately bottoming in the 2nd week of July
  6. 2006 (Wednesday post opex bottom) – Brief bounce to employment day in June and then fell in to
  7. 2004 (Low re-test bottom on Opex Monday) – Rallied in to June and hit an early high on Monday post employment, June 7th – stayed elevated until rolling over post June opex
  8. 2003 (Tuesday post opex) – Surged in to June opex, topped and pulled back to July 1st
  9. 2000 (Wednesday post opex) – trading range with highs on June 2nd and June 19th (Monday post opex) and lows on June 13th & June 29th

 

  • 4 instances (2006, 2010, 2011 & 2012) – the post May opex bounces were brief and the market moved lower
  • 2 instances (2000 & 2004) saw early highs and then trading range took over until at least late in the month
  • 1 instance (2009) saw strength until the Thursday post June employment and then rolled over until the 2nd week of July
  • 1 instance (2003) saw a strong rally until June opex before rolling over
  • 1 instance (2014) – the most recent one – saw a steady, persistent move higher with just two small post employment and post opex pullbacks

Given the strength that has now been seen in to June employment, there is not a lot one can conclude.

2nd Week of June is always important for turns – frequently it is double turns as the Thursday before opex week has seen quite a few important turns since 2008.

  1. 2015 – DOUBLE Turn – minor bottom on Tuesday post employment June 9th at 2072 and a trading top on Thursday, June 11th at 2115
  2. 2014 – DOUBLE Turn minor top on Monday post employment, June 9th at 1956 and Trading bottom on Thursday, June 12th at 1926
  3. 2013 Double Turn High on Monday the 10th of June at 1649 and Bottom on Thursday, the 13th at 1608
  4. 2012 :   SIGNIFICANT BOTTOM on Monday, June 4th – post employment at 1267
  5. 2011 – Exception – just a steady slide
  6. 2010 2009 Major Top on Thursday post employment, June 9th at 956 – above upper bollo
  7. – Bottomed on Tuesday post employment June 8th at 1042 and rallied in to and through opex week
  8. 2008 – : Bottom on Thursday, June 12th at 1331 and bounced in to opex Tuesday
  9. 2007 – Fell all week, but bottomed on Friday, June 8th and bounced in to opex weekOverall, that makes two second Thursday highs (2009 & 2015), five second week bottoms and rallies in to opex week and one exception – just a slide in to opex week, so if there is weakness later in the second week, one must look for a bottom and a bounce in to opex
  10. EMPLOYMENT

Per the employment preview, June employment is an extremely consistent month for turns. Given the rally on Friday, the certainty and timing of a top turn and pullback is still in doubt. It could have occurred on Thursday or it could occur post employment.

  • One study that I last published in November (and regrettably did not look at or consider prior to Friday) was one that highlighted that the market almost NEVER falls on employment day when it enters employment with a daily RSI above 65. Since 2007, the SPY has had a daily RSI above 65 on the day before the employment report and the market has now declined just 5 times on employment day
    1. Jul 11 (late employment) Down 10pts – fell in to a post July opex low
    2. June 16 down 6 pts   ????
    3. Jan 11 – down 4 pts – rally continued
    4. Jan 12 – down 3pts – rally continued
    5. Nov 15 – down 1 pt – market had topped on the Tuesday before employment and continued to fall until opex Monday

If the strength continues in to new highs for June post employment, the likely scenario is just a small pullback in to the end of the week – probably just the Thursday – but if the strength continues past Monday or Tuesday, other scenarios will need to be considered.

QUAD Opex and FOMC

The last three years have been the only 3 years since 1998 that the FOMC meeting has been during June opex week. The general tendency for Quad opex weeks that contain an FOMC meeting (especially in March, June & Sept) is for the primary turn to be post the FOMC meeting. The last 3 years have all seen primary turns post opex. Two of the years (2013 and 2015) saw Double Turns while 2014 just saw a minor top post opex. For now, the only tendency one can continue to expect is a post FOMC – likely post opex as well – turn:

  • 2015 – Double turn – minor bottom on opex Monday and MAJOR top on Monday post opex
  • 2014 – steady rally and a minor top on Tuesday post opex
  • 2013 – Strong rally in to opex Tuesday – pre FOMC top and then a sharp fall in to the Major Monday post opex bottom

4th week of June Turns, quarter end and early July

Finally, there has been a lot of turn activity during the 4th week of June since 1998 – which should be understandable as it is post opex and for many years, it was also the week that contained the FOMC meeting.

I will cover this period in more detail later in the month, but as there have been 14 turns since 1998 (2014 was a double turn) in the 4th week of June, it reinforces the point that June tends to be more of a trading month than a trending month.

Quarter End has definitely seen a lot of turns – some of them just countertrend turns – generally early in July.

While not every year, there has been a strong tendency for turns in early July either side of the 4th of July:

EARLY July Tops:

  1. 2014 minor topped on Thursday, July 3rd – early employment – pre holiday and pulled back
  2. 2012 minor top on Tuesday, July 3rd at 1375 – pre employment and pre holiday
  3. 2011 – Super short Squeeze and MAJOR TOP on Thursday, July 7th – pre employment at 1356
  4. 2009 – Topped on Wed the 1st and fell to Wed the 8th
  5. 2006 – – topped on the 3rd and went down to re-test the lows

Early July Bottoms

  1. 2015 – MAJOR BOTTOM –post employment and post holiday on Tuesday, July 7th at 2044
  2. 2010 SIGNIFICANT BOTTOM on Thursday, July 1st pre employment
  3. 2009 – Final corrective bottom occurred on Wednesday, the 8th
  4. 2005 – Spike low on July 7th at 1184 below lower bollo and 200 day MA and then higher again
  5. 2003 – Tuesday, 1st of July at lower bollo

 

June 2016 Employment Turning Point Preview (as of cob on Thursday, June 2nd)

It has been a super impressive rally out of the May opex Thursday bottom. It probably has been the most impressive rally that the market has had coming out of a May opex bottom that was also the low for the month of May since 1998. The rally in May – June 2000 – was also impressive, but it was much less persistent as it started on May 24th and ended on employment day – June 2nd – at the upper bollo band. The one in May 2014 was also impressive, but the opex period low was not the low for the month of May that year. (June employment in 2014 just had a minor top on the Monday after employment)

I wrote this in April and I will write it again in June that I am surprised and impressed by the return of the persistent bullish conditions. Almost all of the gap downs are faded almost immediately and many more of the gap ups have resulted in Gap and GOs.   There has also been a paucity of hourly buy signals – just one in May against 6 sell signals.

BUT, there is one study below – that I shared the day after the post April opex top about a long period without a 10 min buy signal. There will not be a 10 min buy signal for at least 16 days given Thursday’s rally. The longest period without one is 17 days. The study shows the tendency for the market to have large drops after such extended 10 min buy signal droughts.

Overall, June employment has been the most consistent month for employment turns with the Thursday before and the Tuesday after being the two most important turn days.   2016 has also (so far) been a consistent year for employment turns with the two tops (March and April) occurring on the employment day.

BOTTOM LINE

If historical tendencies hold for June employment, employment in 2016 and for the more extreme current technical conditions of the MID and RUT (but not the SPX), then an employment top and pullback is likely between Thursday’s close and most likely next Tuesday.

There are a few things to be aware of:

  • April and May 2016 saw large gap downs that resulted in strong green candles on employment day
  • As it is a QUAD opex month, if there is an employment top, one must be aware of the general tendency, particularly in March and June for the market to bottom the week before opex week and rally in to opex week – it does not always happen – but it happens enough, particularly in bullish markets – like this past March.
  • Lastly, it is interesting to note that the SPX was at 2095 before the June 2015 employment report and closed today at 2105 – not much change in the last year!

Now that we have seen the market just have a very minor post Memorial Day top and pullback, I will be back with my June preview after the weekend.

-D

June 2016 EMPLOYMENT DETAIL

 Recent employment reports

The employment reports in 2016 have all been about turns on employment day (March, April and May) or the Monday after (Jan and Feb). None of these turns have been a primary long lasting turn. The last 3 reports have had moves that have last 5 or 6 days while the ones in January and February – while greater than 50 SPX pts – just lasted for two days.

Here are the details:

  • Jan -16 (late report) – Major Bottom on the Monday after as the market was very OS – but the bounce just lasted until the Wednesday after and was just over 50 SPX pts
  • Feb 16 – Major Bottom on the Monday after as the market declined sharply from Monday, the 1st –the bounce just lasted until the Wednesday after and was just over 55 SPX pts
  • Mar 16 – minor top on employment day – strong rally ended about 2pm on employment day – highs were re-tested on the Monday after and then the market slipped to a low post ECB on the Thursday after – pullback was 40pts
  • April 16 – minor top on employment day – After a late March surge, the market gapped down on a better report, but then rallied all day and topped near the close. High was tested on the Monday, but held and the market fell back till the Thursday before opex week (just like in March) and then rallied strongly
  • May 16 – minor bottom on employment day – for the second month in a row the market gapped down strongly on the employment report, but the gap down was bought and the market rallied all day and continued higher until closing at the highs on the Tuesday post employment after a 47pt rally – but the market was unable to go further and reversed and fell – finally bottoming on Opex Thursday

June Employment Reports 

  • Definitely lots of turns! In fact June is the most consistent month for employment turns with no rally continuations
  • IN FACT, has produced a MAJOR TURN every year – except for 2014 and 2015
    1. 2007: (holiday week) MAJOR TOP on employment day and a sharp fall to the lower bollo band
    2. 2008: MAJOR TOP the Thursday before and a sharp sell off for 6 days, but we really kept going until an ultimate bottom in July
    3. 2009: Major top on the Thursday after and then down until post opex
    4. 2010: (holiday week) MAJOR BOTTOM on the Tuesday After
    5. 2011: (holiday week) Peaked post holiday on the Tuesday before and then fell until the Thursday of opex week
    6. 2012: (holiday week) MAJOR BOTTOM Fell sharply post holiday and bottomed the Monday after – these were the last lows of the year
    7. 2013: MAJOR BOTTOM After declining from post Memorial Day major top, there was a MAJOR bottom on the Thursday before that produced a 4 day 52pt bounce
    8. 2014: Minor top on Monday after for a 29pt 3 day pullback – very strong market after bottoming on the Thursday of May opex
    9. 2015 .(minor bottom on Tuesday post employment) Having peaked on the Wednesday post May opex, the market had stayed in a tight range from post Memorial Day until Thursday, June 4th when it started to break down. It bottomed for the month on Tuesday, June 9th post employment. Initial rally was only 44pts as the low was re-tested on opex Monday

Current Conditions  (as of COB, on Thursday June 2nd )

The SPY daily RSI is 69 and the daily MFI is 44. Neither of these are particularly extreme. The March and April 16 employment reports had similar daily RSIs and both times the market topped on employment day.

The MID and RUT are of interest right now given that they have had the strongest rallies from the May opex bottom. The MID has gone from being almost daily MFI OS to quite daily OB. Since 2014, the MIDs have been daily MFI OB for the employment report 5 times. The two most recent periods (Dec 15 and Sep 14) produced MAJOR tops prior to the employment report. The three instances before that ( June 14, May 14 and Jan 14) all produced minor tops.

Also, the MID and RUT have been running along and above the upper bollo bands – while they can continue to run for a while longer. This condition can last for a few more days – but generally it results in fairly significant pullbacks. The last two times were before the November 15 employment top and the June 2015 post opex Major top.

The MID also closed on an hourly sell signal – these Thursday before employment signals are either big winners or big losers. The last one on the Thursday before employment was in Jan 2015 – the market topped at the open the next day. The last June one was in June 2014 – the market topped on the Monday after employment and pulled back for 3 days.

Special Research – Long time without a 10 min buy signal in the MID

There is no doubting the extremely impressive bullishness in the market since the February lows. One study that triggered the day after the post opex top in April will trigger again in the next few days. That study is an extended period without a 10 min buy signal. It has now been 15 days since the last 10 min buy signal on Wednesday, May 18th . The longest period since 2009 is 17 days!

Here is what I wrote then (though the stats have been updated)

Long periods without 10 min buy signals – The data is actually concerning for the bulls. There are 15 instances out of 1121 signals in the last 7 years where there was not a buy signal for at least 13 days. The market bottomed that day once and bottomed the next day 3 times. Twice, there was a BIG drop ahead, but in both instances, the drops did not occur until after January opex week.

That leaves 9 instances that all saw immediate BIG drops.

As I try to be data neutral as much as possible AND I just read an article about people data mining for their own purposes… I quickly scanned the 5 instances that had 12 day gaps. Of those 5 instances, 2 kept going higher after a little weakness, 1 went a bit higher and then fell HARD and 2 were at the start of big drops.

Nb: While the drop was not super fast, the SPX did in the end fall 81 pts from April 20th to May 19th – though it was certainly a choppy pullback.

 

Memorial Day Holiday Turning Point Preview for May 2016   (as of late in the day on Friday, May 27th ):

Clearly, the rally out of the May opex Thursday bottom has been more than a bounce – significantly more than the bounces that tend to occur after May opex bottoms. The only May opex bounce that did not terminate post Memorial Day was in 2014.  2014 was also the only year since 1998 (until this year) that has had an opex Thursday low and rally.

The opex week behaviours of May 2014 and May 2016 are quite different and the timing of the gap up above the opex week highs (post Memorial Day in 2014 vs the Wed post opex in 2016) are different, but there are enough similarities that make 2014 (continued rally) a potential analog for the current market.

Since 2007, there have been just two years – 2007 and 2014 – where there was no Memorial Day holiday turn. Prior to 2007, the Memorial Day holiday had a turn in 7 of 9 years – it was ALWAYS a buying opportunity with 1999 and 2000 being MAJOR bottoms, while all of the other years there were minor bottoms with the exception of 2002 (continued fall) and 2003 (continued rally) where there was NO TURN. Since 2007, there have been turns in 6 of 8 years (no turn in 2007 or 2014) with the day after the holiday being the turn day in each instance.

One other important factor to consider is that the employment report is in the same week as the Memorial Day holiday. In the past, this has not seemed to matter to the Memorial Day turns, but with the return of the bullish persistence in the market, it is possible that the market will continue its rally – like it did in May – June 2007 until after the employment report.

Bottom Line

Overall, the market has been consistently turning – when it is expected to turn – around the holidays. A post Memorial Day top of some sort must be the base case for the market, given the history of Memorial Day turns, BUT

  • There are definite similarities to the current market and May 2014 – when there was an opex Thursday bottom and a rally that continued in to June.
  • May 2007 was also a year without an employment turn as the market rallied until topping on the day of the June employment report
  • Lastly, the bullish persistence does seem to have returned to the market, as it seems to fall very reluctantly while rallies have occurred with a lot more ease and the market has tended to close near the high of the day much more frequently.

Overall, the best strategy for Memorial Day turn seems to be to sensibly lighten up on long positions and if one is tempted by the short side, it definitely should be done with a reasonable stop in case the market decides to follow either the 2007 or 2014 analogs where there was no holiday turn.

ENJOY the holiday weekend!

-D

p.s. Given the return of the bullish persistence and the earlier than normal May opex bottom (yes, I missed it…) I must admit to being VERY neutral.  I can see there being a normal Memorial Day turn, but I can also see a continued rally – the bullish persistence – occurring as well.

Memorial Day Turn History

With the exception of 2007 and 2014, the day after the holiday has been a significant turn every year since 2007. It has never been THE top or THE bottom of a move, but the turn has represented a good trading opportunity coming off of the opex turn. 2015 is a good example of this. The market had peaked on the Wednesday post opex. It then fell hard on the Tuesday post Memorial Day and got very OS – it then bounced 28pts in to the next day before turning lower again.

  • 2007: (employment week) NO TURN: had a hard fall on the Thursday before the holiday and (Wednesday post opex minor top) and then ran higher and topped post June employment
  • 2008: Minor Bottom on the day after – fell in to the holiday after a post opex top and then bounced 35pts in 2 days
  • 2009: Fell in to the Tuesday post Memorial Day and it made a MAJOR bottom as the market exploded higher on Turnaround Tuesday gaining 70pts in just over a week
  • 2010: (employment week) Minor bottom on the day after had fallen from the Thursday before and then bounced 37 pts in 2 days till the Thursday before employment
  • 2011: (employment week) After bottoming on the Wednesday post opex, the market bounced hard, but topped out on the day after Memorial Day and fell all the way in to June opex
  • 2012: (employment week) After bottoming on opex Friday, the market had a choppy rally that topped out on the Day after the holiday and fell for 6 days until the FINAL LOW of the year was reached on the day after employment.
  • 2013: MAJOR TOP – this was the re-test of the post opex highs. We gapped up strongly on the day, but found sellers and down we went. Final low was not until the post June opex bottom, but the exit day for this setup was the day before employment. The result was down 75 pts in 8 trading days.
  • 2014 – NO TURN – bottomed during opex week and then a powerful rally started on the Wednesday post May opex that continued until post June employment (BUT, it should be noted that the RUT topped post Memorial Day and was weak in to early June.
  • 2015: minor bottom on the day after – Sharp sell off on the day after – got very hourly oversold (14 RSI on SPY Hourly) and bounced 28pts – but just for a day

Holidays in General

Market has continued to turn, when expected. The only slight twist is that it used to be the market turned post holiday, but in the last year, the turns have been more balanced before and after.

  • Good Friday (2016) – MAJOR BOTTOM day before End of short post opex correction and the market launched higher the next week
  • President’s Day (2016 – opex week) – MAJOR BOTTOM – two days before – the end of the correction was on the Thursday before opex and the long weekend
  • MLK (2016 post opex) – MAJOR BOTTOM on Wednesday post opex / post holiday
  • Christmas / New Year’s (2015/ 2016) – MAJOR TOP right between the two holidays (29th of Dec)
  • Thanksgiving (2015) – MAJOR TOP – 4 days after – this was slightly delayed as the market waited on the ECB announcement
  • Labor Day (2015) – MAJOR BOTTOM – Day before (employment day) – steep drop on the day to test the Tuesday low and over the weekend the market rallied sharply
  • July 4th (2015) – MAJOR BOTTOM – 2 days after – very volatile – it took some time for the market to bottom, but the low was on the Tuesday after and then the market launched in to July opex week.

Current Conditions:

The market has had an extremely good run since the opex Thursday bottom – the market is not particularly OB with a daily RSI of 67 and an MFI of 44.   Here are the daily RSIs since 2007 for the day before Memorial Day.

  • NO TOP (2) – 2007 – 58 RSI   – rally continued until employment day June 1st and 2014 – 68 RSI – market rally continued unabated until a brief pullback from June 9th to the 12th.
  • Tops – 2011 (3) – 60 RSI – Market topped on the Tuesday after and fell in to June opex, 2012 – 49 RSI – Market fell till 4-June and then rallied & 2013 – RSI 66 – Market had topped on Wed post opex and the BIG Gap up (17pts) – failed a bit after the open
  • Overall, the sample size is TOO small to draw any conclusions.

Also, most indices are at, very near or above their upper bollo bands – during bear markets this tends to be a good sell signal, but as was seen in April, there can be strong upper bollo runs that can continue for some time before the market runs out of steam. (In April the SPX continued higher for 6 days and 34pts once it initially hit the upper bollo band on April 14th)

 

Opex preview for May 2016   (as of close of business on Wednesday, May 18th ):

While the market has not really trended so far during this May opex week, it has been generally in line with the May opex tendencies that were posted last week, especially with the point about the market having one extreme for the week on either the Monday or the Tuesday.  Right now, there is nothing that might indicate that the May opex tendencies will change.

Here is what was posted last week:

Overall, the May opex period tends to be the most consistent month for opex turns and tends to have the following characteristics:

  • One extreme for the week on either the Monday or the Tuesday
  • Generally trends during the week
  • Primary Opex turn tends to be on opex Friday or post opex
  • Initial move post opex tends to end post Memorial Day – has only not ended twice since 2007   (2007 & 2014 – market continued to rally)
  • The earliest day for the primary opex turn since 1998 was opex Thursday (after a Tuesday to Thursday sell off) in 2014. Last year the primary turn was the Wednesday after opex – this was the same timing for 2011(bottom) and 2013 (top).
  • If the May opex period produces a bottom (8 times since 1998), all, but one of those bottoms have produced bounces and decent rallies – but only one did not see lower lows in June or July.
  • In general, the May opex period tends to trend. Only 3 times since 1998 has one of the extremes for the week not been on the Monday or the Friday. In those other 3 years (2014, 2011 & 1998), the market saw Tuesday and Thursday extremes for the week.

The current conditions with the SPY (14) daily MFI nearing OS with a reading of 28 – does indicate that a potential opex period bottom is near – but given the way the market has been trading that bottom may just be a bounce post opex in to the Memorial Day weekend

Bottom Line:

A bottom and bounce that starts on opex Friday or more likely post opex (as all of the opex turns in 2016 have been post opex) is likely, particularly as the SPY is near MFI OS, but there are a few things to note:

  • May opex period bottoms tend to just be bounces that last until post Memorial Day or in to early June (2009) and then the market makes a lower low in June / July.
  • A SPY MFI OS signal is rare and is a solid signal, but it can either mean the market will go much lower before reaching the bottom (August 2015) or given the May 2012 and May 2010 (see below) instances, the market has a solid bounce before heading lower.
  • The last three instances that the SPY ran along a declining lower bollo band, the bottoms occurred at much lower levels than many people expected or predicted.

Given the trading range nature of the market, overall it feels that patience is the best approach to this opex period and waiting for a post opex period turn is the safer and higher probability play. If one misses the turn and the bounce, the May opex history strongly suggests that there will be lower lows in June and July.

-D

Detailed Research

Recent Opex Weeks

All of the turns in 2016 have been POST opex

  • April 2016 – extremely OB – MAJOR topped on the Wednesday post opex above the upper bollo band –
  • March 2016 – minor top on the Tuesday post opex and just fell to the open Thursday – 35pt pullback
  • Feb 2016 – Brief pullback top from the close on Monday post opex to shortly after the open on the Wednesday post opex
  • Jan 2016 – MAJOR Bottomed on the Wednesday post opex. Rallied in a volatile fashion to Monday, February 1st

Current Conditions (as of close on Wednesday, May 18th, 2016 )

The SPY is nearing an MFI oversold state with a daily MFI 14 of 28 – the daily RSI is 43.   Daily MFI OS (MFI below 25) is one of the BEST signals there exists, especially during the opex period – it does not happen very often.    The last time there was an SPY daily MFI signal was on opex Friday in August – the day before the extreme move on the Monday post opex  which created a MAJOR bottom.

The last time SPY was daily MFI OS I May was in 2012. The market had been selling off since the 1st of May. The signal was on opex Tuesday and the market bottomed at the close on opex day, but the turn was just a minor bottom and a 44pt bounce in to the Tuesday post Memorial Day.

There was also an MFI buy signal in May 2010. The signal started on Opex Wednesday and the market bottomed 6 days and 74pts later and bounced for three days and just 64pts.

It should also be noted that the SPY is starting a slow lower bollo band run with the lower bollo band having turned lower and declining – this is a dangerous condition, particularly in bear markets. This situation last occurred this past January and before that at the end of September 2015 and in August 2015. While this condition does produce good bottoms, the market can go far lower than one expects.

There have been NO Hourly OS or OB signals so far this week.

May Opex Detail 

    1. 2007: (Minor Top) Minor top on the Wed after opex with a sharp 1 day 27 pt drop
    2. 2008: (MAJOR TOP) MAJOR TOP on the Monday after – A 40pt correction ended the Friday before opex and then it was an all up week and a top on the Monday after (note the 1st trading day of May low was not taken out till post opex despite the 40pt correction)
    3. 2009: (Minor Bottom) From a top the Friday before (a late employment report top), it was down all week until a minor bottom on opex Friday (but once again, the first trading day of May low was not broken)
    4. 2010 Flash Crash Month (MAJOR BOTTOM): Down all week – strong bounce from opex Day in to the Monday after, but made its final MAJOR Bottom on the Tuesday after
    5. 2011: (minor bottom) A good bounce from Tuesday to Thursday during the week, but then a long slide in to a Wednesday after minor bottom and then bounced in to a post Memorial Day top
    6. 2012: (minor bottom) Selling was strong all of May and it was an all down week – market got very OS on the Friday. The market bottomed on opex day and had an 11 day 44 pt bounce in to a post Memorial Day top
    7. 2013: (MAJOR Top) Seemed like the market would go up forever as it rallied relentlessly until Bernanke spoke on the Wed post May opex and it MAJOR topped! And fell in to June opex
    8. 2014: (Minor top) Minor top on Opex Tuesday with an opex Thursday low (which turned out to be a MAJOR BOTTOM)- Gapped up on opex Monday and ran higher, but got hourly overbought and the advance stalled after new all time highs on opex Tuesday. A mild pullback on the Wednesday accelerated on opex Thursday, but the market got hourly oversold and bottomed on opex Thursday and the rally commenced again with only the Tuesday post opex the only significant down day between the Thursday opex week low and the Monday post June employment.
    9. 2015 – Significant MAJOR top on Wed post opex – market rallied from a low on May 6th and kept going through a late employment report – pulled back from employment day to opex Tuesday, but then kept moving higher until stalling post opex and finally peaking on the Wed post opex – initially just fell until the day after Memorial Day (3 trading days)

May Opex Tendencies

Overall, the May opex period tends to be the most consistent month for opex turns and tends to have the following characteristics:

  • One extreme for the week on either the Monday or the Tuesday
  • Generally trends during the week
  • Primary Opex turn tends to be on opex Friday or post opex
  • Initial move post opex tends to end post Memorial Day – has only not ended twice since 2007   (2007 & 2014 – market continued to rally)
  • The earliest day for the primary opex turn since 1998 was opex Thursday (after a Tuesday to Thursday sell off) in 2014. Last year the primary turn was the Wednesday after opex – this was the same timing for 2011 and 2013.
  • If the May opex period produces a bottom (8 times since 1998), all, but one of those bottoms have produced bounces and decent rallies – but only one did not see lower lows in June or July.
  • In general, the May opex period tends to trend. Only 3 times since 1998 has one of the extremes for the week not been on the Monday or the Friday. In those other 3 years (2014, 2011 & 1998), the market saw Tuesday and Thursday extremes for the week.

 

May 2016 Employment Turning Point Preview (as of close on Thursday, May 5th):

As I have done the work and it is good to maintain one’s processes, here is the May employment preview.

Overall, the persistent February – March – April rally has come to an end with the post April opex MAJOR Top. Given the market’s history after Major Opex tops, there should now be good two way action over for the next few weeks. A good example of Major post opex tops after decent rallies was Q1 & Q2 last year when the Major Post opex tops created good two way price action. Interestingly, those post opex tops in February, May and June all produced post employment bottoms and rallies during the subsequent opex period.

With the market falling today back towards Wednesday’s lows today, the risks have increased in the short term. Per the May turning point preview, there is only one year – 2012 – where the market fell from an early month high through the employment report.  Going back a bit further to 1998, there were 5 employment bottoms from 1998 to 2004.  3 occurred on the Tuesday or Wednesday post employment, one occurred on employment day and one occurred on the Wednesday before employment. (see below for details.)

Overall, the trend in to the employment report has become much weaker. This started at the beginning of 2015 and despite the bullishness at the beginning of March and April, this will be the third time this year that the market has been in a weakened state going in to the employment report. In January and February, the market briefly bottomed on the Monday post employment.

For now, whether the market bottomed on Wednesday or bottoms on the employment day or some time next week, one must assume the character of the month of May will assert itself which means that there will be a countertrend rally that will either be sharp or will last 6 or 7 days once the employment low is in.  The only year that a downtrend continued without such a rally was in 2012 (since 1998).

BOTTOM LINE

The market has definitely become more interesting in the last two weeks.

  • A decent employment bottom should occur reasonably soon, if it did not occur on Wednesday at SPX 2046.
  • If the employment bottom occurs next week post employment then history suggests either a sharp rally or a persistent rally in to opex week.
  • As a reminder, 2012 is the one year where the market fell through the employment report since 2007. There was a very brief Wednesday post employment to Thursday rally of 24pts, but otherwise the market ran along the lower bollo band until opex day. (nb: the NDX / QQQ is in that technical situation)

Will be back with more next week,

-D

May 2016 EMPLOYMENT DETAIL

Recent employment reports

Since January 2015, the character of the employment report turning point has changed. While the March and April 2016 employment report turns were fairly standard bull market ones. Short term tops post opex and then strong rallies and then minor employment day tops and pullbacks that ended on the Thursday after employment.  Most every report since January 2015 has seen much more weakness in to at least the few days prior to the report.

  • In 2015, there was early month weakness and bottoms before the report in 6 months (Feb, Apr, May (late report), August (before and after), September and October.
  • In 2015, there were after the report bottoms in 3 months – March (Wed after), June (Tues after) and July (Tues after) – In these three months, it is important to highlight that like in April 2016, all three of the previous months saw post opex tops.
  • In 2015, there were also two early month tops (November and December) that saw declines in to opex Monday.
  • In Jan & Feb 2016, there were after the report bottoms on the Monday after the employment report – but they were just 50 and 55pt bounces to the Wed after before the market went lower

May Employment Reports

 Per the May Turning Point Preview –

The early May price action is key given the tendency to turn in early May or have the extreme for the month in the first four trading days of May.  There are almost always May employment turns, but quite frequently they are just countertrend minor turns lasting a few days to a week (The week long one in 2009 was the longest).

  • There has only been one year since 2007 where the market fell through the employment report. That was in 2012 when the market trended lower all month until the opex day bottom. . (There was a very brief Wednesday post employment to Thursday rally of 24pts, but otherwise the market ran along the lower bollo band until opex day)

Since 1998, there have been 15 employment reports on the first Friday in May (and 3 late reports). Those employment reports have seen 9 tops and 6 bottoms – here is what occurred with the bottoms:

  1. 2010 – FLASH CRASH – MAJOR BOTTOM 4th day on Thursday, May 6th at 1066 – day before employment – bounce lasted a week
  2. 2004 – Major Bottom on Wednesday post employment – May 12th at 1076 at 200 day MA and lower bollo – low for the month
  3. 2002 MAJOR BOTTOM on Tuesday post employment, May 7th at 1049 – The rally was volatile and lasted 10 days – but the initial low was re-tested after a few days
  4. 2001 – MAJOR Bottom for the month on employment day May 4th at 1232 – but the initial rally lasted two days and then the low was re-tested
  5. 2000 MAJOR BOTTOM on Wednesday post employment, May 10th at 1375 – rally lasted 6 days
  6. 1999 – MAJOR BOTTOM Wednesday, May 5th at 1317 before employment – rally lasted 8 days

In the end, all produced strong bottoms and rallies for at least 6 days. BUT, there is one exception that should be noted which is 2012 – which topped on Tuesday, May 1st (at the upper bollo band) and trended down until opex day May 18th.

 Current Conditions    (as of COB, on Thursday May 5th )

The SPY definitely has become weaker with a daily RSI of 37 and an MFI of 46. Interestingly, there have only been 3 employment reports since March 2015 that have seen the SPY’s daily RSI above 50 – this fits with the general theme that the market is not as bullish going in to employment reports as it used to be.

While the SPY RSI reading does indicate that a bottom is likely (if it did not already occur at Wednesday’s lows) It is not a certainty.

The NDX / QQQ are still MFI OS and are running lower along their daily lower bollo bands. This is a dangerous condition – last experienced in January and February.  The last time NDX / QQQ was OS in May was in 2012 and the market trended down until opex day.

 

May 2016 Turning Point and Employment Preview (as of close of Business on Tuesday, May 3rd)

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.

Given the post I made on Sunday, May 1st  and the market’s subsequent rally and top on Monday, I decided to wait a day to publish the May preview to see if I could provide some perspective on how long the pullback from Monday might last.

While it is still early in the month, right now, the market is conforming to the late April – May pattern – which suggested a rally from late April in to early May and then a pullback – so far so good. In most instances (2012 being a noticeable exception), these initial May pullbacks were short lived – just a few days – so if the market does not bottom on Wednesday or Thursday for at least a bounce then the normal pattern will be breaking and something else will be happening that we will need to dig in to.

It should be noted that there are only 3 months of May since 1998 that trended (see below), all three made one of their extremes for the month of May on the 1st trading day of the month. In 2007 & 2013, the market was down on the 1st and then trended higher until at least post opex, while in 2012, the market did the opposite and fell from the 1st until opex day.

May Perspective

The character of the month of May has changed over the years – really since 2006 – though 2007 was a bit of an outlier. There really have been two distinct types of May since 2007. Late in opex / post opex has been extremely important for turns.

  • Trading Range – upward or downward sloped (6 out of 9 years) headed in one general direction with distinct highs and lows that did not resolve till post opex
  • Trend move till opex or later (3 years)

Also, quite frequently one of the extremes (high or low) for the month occurs during the first four trading days of the month (It happened every year from 2009 – 2013)

Employment

The early May price action is key given the tendency to turn in early May or have the extreme for the month in the first four trading days of May. There are almost always May employment turns, but quite frequently they are just countertrend minor turns lasting a few days to a week (2009).

  • There has only been one year since 2007 where the market fell through the employment report. That was in 2012 when the market trended lower all month until the opex day bottom.

Interestingly, this short term nature of employment turns has also been evidenced in 2016:

  • Jan & Feb 2016 – The market traded down in to employment and then had brief bounces from the Monday post employment to the Wednesday post employment
  • March & April 2016 – Market topped on employment day and bottomed the following Thursday and then rallied strongly in to opex week

 May Opex

  • The May opex period is one of the most consistent ones for turns.
  • It can be a bottom or top – it all depends on the trend during opex week – the May opex period is definitely one for trending until late in the opex period (though May 2014 was an exception).
  • Opex Day or the Monday to Wednesday after always seem to be the turning points   (except 2014 when the low was on Opex Thursday)
  • Except for 2004, 2011 and 2014 – the market does seem to trend a fair amount with Friday being either high or low for the week every other year since 2002 (Monday was the other extreme in 9 of those 14 years). Since 1998, opex week has trended up 8 times, trended down 6 times and chopped around a bit 3 times (2014 most recently)
  • One other odd feature of May opex week as there is almost always a pullback the week before May opex week (generally the case) or a pullback in to May opex week. 2013 was the one real exception when the market was just relentlessly higher.

Memorial Day Holiday

  • Since 2008, the Memorial Day holiday has been very good for countertrend trading turns. The holiday turn has never been THE top or THE bottom of a move, but the turn has represented a good trading opportunity
  • There was no turn in 2014, but otherwise there has been a turn after the holiday in every year between 2008 and 2015.
  • In 2015, the market had a minor bottom. There was a Sharp sell off on the day after – the market got got very hourly oversold (14 RSI on SPY) and bounced 28pts – but just for a day

 Current Conditions

It has been a long time since the technical conditions were so mixed.

  • The SPX just ended a 10 week streak of higher weekly lows. The last time this occurred in to the end of April was Spring 2010. May 2010 was a volatile month which included the Flash Crash and a minor post opex bottom. There is nothing about the current SPX conditions that are technically notable.
  • NDX / QQQ: The NDX / QQQ are daily MFI OS. They have also been walking down the lower bollo band. As was experienced in January 2016, this is a dangerous condition that can last longer than traders can think possible. The last time the NDX / QQQ was MFI OS in May was in 2012. Back then, the market did not bounce until a minor bottom on opex day. The final low was post employment in June.
  • MID / RUT: In direct contract to the NDX, the MID and RUT just ended extended MFI OB periods (probably driven by strong commodity prices among other things). This is the 3rd MFI OB period for the MID in 6 weeks. The last time, there was such a cluster of OB periods was in June / July 2014. Back then, the MID and RUT underperformed while the SPX was in a upward sloping trading range until it topped out post July opex.

Bottom Line:

The month of May is generally a very good one for traders, as there is generally good two way price action in the first half of the month before a stronger trend generally takes over during opex week until the late in the opex period turn.

  • The lack of an April opex buying opportunity does mean that we are dealing with a slightly different than normal April – May period. This same message is underlined by the different technical configurations of the three index grouping – SPX, NDX & MID/RUT.
  • For now, the history of early May tops and pullbacks suggests the current pullback should end on Wednesday or Thursday. If it does not, then caution is advised as this month will start to share some of the key characteristics of the one downtrending month of May since 1998, which is 2012.
  • Lastly, one should also keep 2010 in mind as that is the last year with a significant late in April top. That year there was a Friday to Monday bounce and then three days of weakness that culminated in the Flash Crash on the Thursday before employment. I am not suggesting that will happen this Thursday, but there are certainly a few similarities to the two years, particularly given the market had a relentless 10 week rally in 2010 from the Feb low to the April top.

Ever interesting, more as the month progresses,

-D

BEGINNING of May

(As published on May 1st)

Given that April 2016 was a bit of a different month with NO opex buying opportunity, May 2016 may prove to have a different than normal character, but given the late in the day rally on Friday, April 30th, one should be aware of two things that are fairly consistent with the month of May:

  1. The Late in April buying opportunity for a rally in to May has occurred in 15 of the last 18 years. The other 3 years (2007, 2008 & 2013), the buying opportunity occurred on May 1st – good for at least a bounce. Though in the case of 2013, it was the start of a VERY strong rally in to the post opex MAJOR TOP. 2007’s low on the 1st also produced a strong rally.
    • The late April to early May rally has on average lasted 7 days with a minimum of 3 calendar days.
    • The shortest was in 2010 – Friday, April 30th near the close to Monday, May 3rd. The Monday was an inside day and the rally was 19pts.
    • In 2015, the rally was from late on Thursday, April 30th to Monday, May 4th and was good for 44pts.
  2. Given the late April in to May rally, it is important to also know that in the last 18 years, there has been a short term inflection point in the first four trading days of the month 16 times (89%)
    • 8 times on the 1st day (44%)
    • 6 times on the 2nd day (33%)
    • 2 times on the 4th day (11%) – 2010 had the FLASH CRASH
    • 11 times it was a top, 5 times it was a bottom

Essentially, if there is a rally on Monday, it may only last one to 4 days in to May. If the market makes new lows on Monday, 4 times the local low has been on the 1st. The only exception was an EXTREME ONE, the Flash Crash in May 2010 on the 4th day.

(UPDATE: as of close of business on Tuesday, May 3rd)

Given the late April to May rally occurred AND we topped (at least temporarily) on the first day per #2 above, I decided to delay issuing this monthly preview until after Tuesday’s price action in order to look a bit more closely at what history might suggest. There are three things that stand out – topping on the first trading day of May, topping on the first Monday in May and a short late April to early May rally.

In taking these three different looks at potential analogs to Monday’s top, except for 2012, all of the initial pullbacks were reasonably short lived. Some were very sharp (like in 2000 and 2010 – Flash Crash), but they did not last that long.

Short late April to early May rally:

  • 2015 (Thursday to Monday) – Rallied 44 pts and then pulled back 53pts to the Wednesday before a late employment report
  • 2010 (Friday, the 30th to Monday, the 3rd) – 19pt rally – inside day on the Monday – closed at the highs. Market gapped down and had large RED candlestick on the Tuesday, another gap down with a doji on the Wednesday and FLASH CRASH on the Thursday.
  • 2004 (Friday to Tuesday) – – Market rallied 21 pts in to early May and then topped and fell for 6 days and 49 points before the first bounce on the Monday post employment
  • 2002 (Monday to Thursday, the 2nd) – Rally was just a short bounce of 33pts in a sharp downtrend. Market then fell 50pts until the next bounce on Tuesday, the 7th post employment – 5 day pullback
  • 1999 (Friday to Monday) – Market had a Friday to Monday rally of 43 pts and then an equally short Monday to Wednesday 40pt pullback before a steady 8 day rally in to the May top.

This suggests any pullback could be reasonably short lived – with the largest pullback lasting 5 days . Flash Crash skews the average size of the pullback

Topping on the first trading day of May and / or the first Monday

  • 2012 – (Tuesday, May 2nd) This was THE TOP for May – market was steadily down ALL month until opex day, may 18th
  • 2011 – (Monday, Market topped at the open on the Monday (Bin Laden news) and fell 42pts to the Thursday before bouncing before employment until the Tuesday after – market was lower all month and in to June opex.
  • 2000 – (Monday, May 1st) – fell 84pts from the Monday high until Wednesday’s low, made a weak rally attempt for two days and then fell to just below the 200 day MA and just above the lower bollo on Wednesday, the 10th of May. Total fall was 107 pts
  • 1999 (Monday, May 3rd) – Market had a Friday to Monday rally of 43 pts and then an equally short Monday to Wednesday 40pt pullback before a steady 8 day rally in to the May top.
  • 2015 (Monday, May 4th) Rallied 44 pts and then pulled back 53pts to the Wednesday before a late employment report
  • 1998 (Monday, May 4th) High for the month was on Monday, the 4th. Initial pullback was until Thursday, May 7th and was for 40pts

Again, except for 2012, most of the pullbacks were short lived ending initially on the Wednesday or the Thursday prior to employment.

************

Character of May since 2007

The character of the month of May has changed over the years – really since 2006 – though 2007 was a bit of an outlier. There really have been two distinct types of May since 2007. Late in opex / post opex has been extremely important for turns

  • Trading Range – upward or downward sloped (6 out of 9 years) headed in one general direction with distinct highs and lows that did not resolve till post opex
    • 2008 – Sharp moves both ways until peaking on Monday post opex (MAJOR TOP) and heading lower)
    • 2009 – Volatile with early rally and two pullbacks that did not resolve higher until post Memorial Day (Low for the month was on 15-May, but that low was tested on May 21st and 26th)
    • 2010 – Peaked in Late April, Flash Crash in first week, then sharp week long rally, then even bigger fall till post opex bottom
    • 2011 – Peaked on first trading day – headed generally lower, but with sharp bounces every week
    • 2014 – choppy with initial pullback, strong rally in to opex, sharp pullback from opex Tues to Thurs and then a post opex rally (low for month was May 7th)
    • 2015 – Bounce to start the month, but then sharp pullback with lows of the month made on 6-May, then higher in to opex and a topped on Wed post opex (MAJOR TOP) (low for the month was May 6th)
  • Trend move till opex or later (3 years)
    • 2007 – trended higher until 1-June
    • 2012 – Peaked on first day and trended lower until post opex bounce
    • 2013 – Sharp down on first day and then trended higher until peaking on Wed post opex (MAJOR TOP)
  • Sell in May? – there are always a few articles about it. The key thing to remember with respect to sell in May , is that the period from late May to early June has been an important time for major tops (50 plus SPX pts) every year since 2007 EXCEPT for 2014, BUT 2011 and 2015 are the only years since 1987 that the high for the year occurred in May. Otherwise, there have just been Q2 sell offs (except for 2014) that ended in June or early July.

 

FOMC Turning Point Preview for April 2016 (as of close of business on Monday, April 25th)

The late in the month FOMC meetings that occur in January, April, July and October have become somewhat less significant since the start of the FOMC press conferences. These FOMC meetings are still producing turns– but given their generally post FOMC timing, they could be related to month end / month beginning dynamics as well as the FOMC meeting.

The FOMC meetings generally see rallies in to the announcement. The last two times the market fell in to the meeting were in April 2015 (Monday before top and Thursday after bottom) and January 2015 (Thursday before top and Monday after bottom)

The period at the end of April in to early May is generally a VERY positive time for bulls as there is almost always a rally around the turn of the month – only three times since 1998 has there not been a bounce in to the first trading day of May and on those three occasions, there was a solid bottom and bounce that started with a May 1st low. BUT, it should be noted that April almost always produces an opex period buying opportunity and there was not one this month, so maybe this edge changes too  (see details below).

Except for the Good Friday holiday bottom on Thursday, March 24th – ALL of the turns in 2016 have occurred post the Turning Point.

April 2016 clearly has had a slight character change in comparison to all of the Aprils since 2008 as there was no opex period buying opportunity.   The top at SPX 2111 last Wednesday, April 20th may be significant given that it occurred post opex and above the upper bollo band, but the Fed meeting and the late April – early May dynamics do favor the bulls to a certain extent.

Bottom Line

April has been a month that has been even more bullish than expected (due to the lack of an opex period buying opportunity).   This is the first time since the bottom on February 11th that the market did not conform somewhat to historical expectations.

There is no clear edge prior to the FOMC right now, particularly given the daily OB condition of the MID and RUT.  I can provide solid supporting evidence to all three of the following scenarios:

  • Monday’s 2077 low holds and the market rallies in to early May
  • Market continues the post opex pullback through the FOMC meeting and bottoms on Thursday (remember Thursdays have been the day for the three latest pullback lows – March 10th, March 24th and April 7th) or Friday and bounces in to early May
  • Market falls in to Monday, May 2nd and then begins a stronger rally – probably through at least the employment report on Friday, May 6th

If one is well positioned right now, great!  If not, one may be best served to wait until at least Thursday, if not early May to try to determine the market’s intentions.

I will provide more perspective early next week with the May preview

-D

DETAILED Information

FOMC

Generally, FOMC meetings are times for turns – but the timing and consistency of the turns for the non press conference meetings has become much more erratic. Most of these turns seem to have more to do with end of the month / beginning of the month dynamics than the Fed statement. To illustrate, here are the last non press conference turn dates:

  • Jan 2016 – MAJOR TOP Monday, February 1st
  • Oct 2015 – MAJOR TOP Tuesday, November 3rd
  • July 2015 – minor top Friday, July 31st
  • April 2015 – minor bottom – Thursday, April 30th (just a bounce – primary turn the Monday before)
  • January 2015 – MAJOR Bottom Monday, February 2nd

 

  • The window of opportunity for an FOMC inspired turning point is from 2 days before to 4 days after (Tuesday of the following week)
  • Here is what has occurred in the last few FOMC meetings that have NOT had a press conference or been combined with the employment report or opex
    • January 2016 (27th) – Market had bottomed the previous week post opex. Fed day was a wide range day and the market made the low for the week in the late afternoon. The market kept moving higher in a volatile fashion until near the close on Monday, Feb 1st where it MAJOR topped and continued lower
    • October 15 (28th) – After a brief pause post opex, the market resumed its surge that had started in late September. Fed day was a strong up day and the market continued higher until the following Tuesday (3-Nov)
    • July 15 (29th) – After falling sharply from the Monday post opex top (20th), the market bottomed on the Monday before FOMC and then topped again on the Friday post FOMC.
    • Apr 15 (29th) – minor top on the Monday before and a bottom on the day after. Market had surged from the opex day (17th) low, but the gap up on the Monday before the FOMC failed and the market fell until late on the day after the FOMC day. (It then rallied for two days before falling again)
    • Jan 15 (28th) – MAJOR BOTTOM on Monday post Fed day – first trading day of February – the market had peaked on the day of the ECB meeting (Jan 22nd) and fallen sharply. Fed day was a gap up that failed and the market fell hard until the Monday post FOMC.
    • Oct 14 (29th) – After the MAJOR October opex bottom, the market surged higher. FOMC day was volatile, but the market continued higher until a brief two day pullback on the Tuesday post FOMC
    • Jan 14 (29th) – Had peaked on the Tuesday post opex and post MLK (Jan 21st) While there was some volatility on the 3 days around the meeting, the market continued to fall until early February with the largest down day occurring on Monday, Feb 3rd – though final low was on Wednesday, Feb 5th.
    • Oct 13 (30th)- minor top on Fed day and a 3 day pullback. Had been rallying strongly since major bottom on Oct 9th

Overall, there is no strong edge to play.  If a move does continue in to the following week, then the probability of a turn does increase as 4 of the 5 moves in to the following week did result in major market reversals.  (Oct 2014 was not due to the MAJOR opex bottom that month)

 April FOMC Meetings

Given the normal opex price pattern of an April opex period buying opportunity , the market is almost always rallying in to the FOMC meeting – until at least the Monday before (2010 & 2015). Clearly, 2016 is slightly different given the Wednesday post opex top.  There have been three significant April FOMC Tops:

  • 2010 – Monday before was the high. The market then became volatile before eventually falling in the Flash Crash during the first week of May
  • 2011 – MAJOR Topped on the Monday post FOMC (first trading day of May)
  • 2012 – MAJOR topped on the Tuesday, post FOMC (first trading day of May)

 

In the last 3 years, the April FOMC has seen minor tops after rallies from the major opex bottoms

  • 2013 – Fed day was a one day trend day down 23pt pullback and then the rally continued
  • 2014 – There was a dip that ended the Monday before and then a rally to the Friday after, which was employment day and then a minor top
  • 2015 – Topped with a gap up on the Monday before and then bounced from the Thursday after until the Monday, May 4th

 CURRENT CONDITIONS

With the pullback from last Wednesday, the current SPY / SPX conditions are unremarkable. The only noteworthy extreme is that BOTH MDY and IWM are daily MFI (14) OB.  The last time IWM was MFI OB was a bit before the highs in November 2015 and June 2015.  These conditions are not an immediate SELL signal, but they are cautionary signals, as there eventually is a pullback or a top required to re-set them. This is not always true, particularly in Q1, but it is generally the case.

APRIL OPEX TOPS

Per the April opex preview, April opex has rarely produced primary turn tops, as it is almost always about April opex buying opportunities.  There have only been five primary April opex tops since 1998.  Also, in 2014, there was a minor top after the MAJOR opex / Good Friday bottom

  • April 1998 – MAJOR TOP – Wednesday after opex – fell 57pts in 5 days and bounced in to a lower high on Monday, May 4th and then drifted lower in to late May
  • April 2000 – MAJOR TOP – Wednesday after opex – post Good Friday – this high was re-tested on Monday, May 1st, but failed and fell a total of 107pts to May 10th
  • April 2001 – minor top – Opex Wednesday – MASSIVE rally on opex Tuesday – market topped on opex Wednesday, but just pulled back for a week. One of the rare times the April opex week low was not broken late in opex or post opex      (note there was a MAJOR Bottom in March 2001)
  • April 2002 – MAJOR TOP – Opex Wednesday – just a strong opex Monday to opex Wednesday bounce and then the markets rolled over again.
  • April 2003 – minor top – Wednesday post opex – just a pullback from above the upper bollo for 2 days and 23pts. (note there was a MAJOR Bottom in March 2003)
  • April 2014 – MAJOR BOTTOM at the beginning of the opex period and minor top on the Tuesday post opex that was for 6 days and 34pts that lasted until April 28th.

Interestingly, when April opex had a top which was either the primary turn or was the first of a double turn – it quite frequently fell below the initial opex week low.  (The last time it did not was in April 2003)  SPX 2040 seems like a long ways away from current prices – but it is something to be aware of.

LATE APRIL RALLY in to early MAY

Given the April opex buying opportunity did not materialize, this edge may not appear either, but one should be aware that in 15 of the last 18 years, there has been a rally from at some point in late April (as late as the 30th) until at some point in early May.  In the other 3 years (2013, 2008 & 2007) the market bounced from a May 1st low.

It is important to note that this is a short term edge. The shortest rally was just the one day in 2010 – Monday, May 3rd gap up and run all day – which still formed an inside day before falling in to the Flash Crash.

  • 2015 – Thursday, April 30th to Monday, May 4th 44pts
  • 2014 – Monday, April 28th to Friday, May 2nd – 42pts
  • 2013 *** – Failed – Market was down all day on Wednesday, May 1st (Fed day) – bottomed at the close and rallied 110pts in the the May post opex top
  • 2012 – Monday, April 23rd (post opex bottom) until Tuesday, May 1st (MAJOR TOP) – 57pts
  • 2011 – Monday, April 18th (post opex bottom) until Monday, May 2nd (MAJOR TOP) – 77pts
  • 2010 – Friday, April 30th to Monday, May 3rd – inside day – 19pts
  • 2009 – Tuesday, April 21st (post opex bottom) to Friday, May 8th – 105pts
  • 2008 *** – Thursday, May 1st – gapped down open and rally till May 2nd (employment day) open – 42pts
  • 2007 *** – Tuesday, May 1st to Wednesday, May 9th – 39pts

*** Failed – May 1st bottom and rally

 

Opex preview for April 2016   (as of close of business on Wednesday, April 13th)

To be totally honest, today’s opex Wednesday rally is much more substantial than I would have predicted. On Tuesday, at 10:30am, there was a MID MFI Buy signal. While these have always indicated at least a bounce, they have never marked the opex week low unless it was an extended signal (Nov 2012 – 21 periods) Otherwise, the bounces just lasted 1 or 2 days. Similar price action for this week made sense given the April opex tendencies and the choppy market price action.

Per the April Turning Point Preview:

The April opex period has the most pronounced tendency of ALL 12 opex periods to produce a buying opportunity. It is not always the most straightforward or obvious buying opportunity and frequently the buying opportunity is the product of a double opex turn with a peak during opex and a bottom post opex. Of course, in 2015, the market was unusual with a top on opex Wednesday and a bottom 40 pts lower on opex Friday below the previous low of the week. Overall for April opex,

  • There have been 14 opex buying opportunities since 1998.
  • 9 of those 14 buying opportunities have occurred after an opex week high and then a pullback that lasted between 2 and 6 trading days (Median and average is 4). And all of these buying opportunities occurred at prices below the previous low of opex week.
  • If the market falls directly in to opex from an early April top then the likelihood is for an opex week bottom. (Recent examples 2014 and 2013)
  • If the market rallies in to opex week and then falls, the opex buying opportunity is almost always post opex (though it was opex day in 2015)

In 2015, a late in the opex period buying opportunity looked doubtful with a strong surge higher on opex Tuesday and a gap up on Wednesday (very similar to what has just occurred in the market in April 2016), but then there was news overnight on opex day and a strong decline that somewhat unexpectedly bottomed at 2:10pm on opex day.

Given the move to the upper bollo on the SPX today, there are three April opex periods to mention:

  • April 2007: There was NO PULLBACK and the market just began a slow crawl along the upper bollo, but it should be noted that there was the Asia crisis major bottom during March 2007 opex
  • April 2009: Came close, but did not touch the upper bollo bands. Got very Hourly OB on Opex Friday after surging from an opex Wednesday low – gapped down on the Monday post opex and gapped down again and bottomed at the open on Tuesday post opex 8.5pts below the opex week low.
  • April 2010 (minor pullback)– Gapped above the upper bollo on Opex Monday and pulled back before surging again on Opex Wednesday and then closed near the highs on opex Thursday – 17pts above the original upper bollo breach. Gap down on Opex Friday and fell to the 20 day MA on Monday post opex 5.5pts below the opex week low and then rallied for a week in to the MAJOR TOP that preceded the Flash Crash

The move to the upper bollo during the opex period is a reasonably frequent occurrence. It has happened 33 times since 2007. There were 3 instances post MAJOR lows where there was NO discernible pullback. The other 30 instances are close to being evenly split between minor pullbacks and significant major tops. The last four instances were ALL Major tops (examples May and June 2015) The last minor pullbacks were in May 14 and Nov 13

If it was ANY month except for April, I would believe there was a HIGH probability for a MAJOR TOP for this opex period as well, but the last MAJOR tops for April opex were in 2000, 2001 and 2002 and I believe the character of April opex has changed since 2003.

ECB – The next ECB meeting is on Thursday, April 21st. The ECB meetings have all marked significant recent turns +/- 1 day. 3 of the last 4 have been bottoms

  • 10-Mar-16 – late afternoon low and start of the second March surge
  • 21-Jan-16 – Major January bottom the day before
  • 3-Dec-15 – MAJOR TOP the day before
  • 22-Oct – Post opex bottom the day before and ECB announcement ignited the surge in to early November

FED – Next Fed announcement is on April 27th. The market has almost always rallied in to these Fed meetings. Though the market did minor top two days before in 2015 (partly due to AAPL’s earnings) and it MAJOR TOPPED in April 2010 two days before the announcement after the long extended run from the February 2010 bottom.

Late April:  In 14 of the last 18 years, there has been a rally from the end of April in to early May. The rally can start as late as April 30th, but it is a pretty consistent occurrence. Last year the rally started on Thursday, April 30th and went 44pts until Monday, May 4th. I will cover this again in my FOMC preview.

Bottom Line:

Given the strong April tendencies, the upcoming ECB and Fed meetings, the most probably outcome for the April opex period in order of probability are:

  • Still an opex buying opportunity some 2 to 4 trading days after the opex week high at some level around at least last week’s closing level 2048 – if not at or below last week’s low of 2034 (this also fits with Cobra’s view that the Bulls have a daily Buy coupon that is still unused)
  • Continued rally in to an opex Friday / post opex top and a minor top pullback that ends some time before or after the ECB meeting (this is similar to what happened in March with the employment report and the ECB meeting) and certainly before the FOMC meeting announcement (it is also what happened post Feb and March opex weeks)
  • SIGNIFICANT Major top at some point in the opex period. This does not seem probable given the April tendencies, but given that almost 50% of the opex periods that have hit the upper bollo have resulted in MAJOR tops this can not be dismissed as a possibility. This is what happened after the two month bear market rally in May 2008.
  • Rally continuation – this is very low probability as there has been no significant oversold low since February

Definitely somewhat surprising, but still very interesting.

-D

Detailed Research

Recent Opex Weeks

There are just two recent opex weeks to highlight as this opex period does share some similarities to both of them – they are the last two opex periods – February and March 2016. Both topped post opex (Monday in Feb and Tuesday in March) and pulled back for 2 days. Here are the similarities

  • Bottomed on Thursday before opex week
  • Strong green candles on opex Tuesday
  • Low for opex week was on Opex Tuesday
  • BOTH opex weeks then topped post opex and pulled back,
  • Feb 16 – at the close after another strong gap up on the Monday post opex – then pulled back to Wednesday morning, which traded to the opex Tuesday (post holiday) gap up candle
  • Mar 16 – Topped on Tuesday post opex and pulled back for two days as well, bottoming on the Thursday morning – with a more limited than expected pullback of just 35pts.

Current Conditions (as of close of business on Wednesday, April 13th)

SPY RSI is 65 and MFI is 66. There is nothing extreme in these conditions, but most of the important indices closed above their UPPER Bollos – see study below for potential implications.

The market closed at the highs on Wednesday. Given the market strength, and the stats on opex Wednesday gap ups and Opex Wednesday hourly sell signals. New highs on opex Thursday, possibly, but less likely on opex Friday and then a pullback make sense.

Gaps up on Opex Wednesday are generally quite bullish in the short term. The Gap was only filled about 1/3rd of the time on the day. In almost ALL instances, the market went on to make higher highs later in the opex period. (Recent examples – Feb 16 & June 15 – post opex tops). Though two recent examples where the market did not follow through are April 15 (Wed top) and Jan 16 (Wed top).

SPX at or above upper bollo during the opex period (close, but still below is not included.)

  • MAJOR TOPS (16) – At least 50pt pullbacks, if not much more significant and long lasting tops.
  • Minor Pullbacks (14) – can be just a few days and generally back to at least the middle of the opex week range if not below it.
  • NO PULLBACKS (3) – Normally a major significant low occurred that month (Oct 13, July 2009) or the previous month (Apr 07)
  1. June 2015 –(MAJOR TOP) Came within 1 pt of the upper bollo on Monday post opex and MAJOR TOPPED and declined in to July
  2. May 2015 (MAJOR TOP)– first touch was on Monday post opex. Market MAJOR TOPPED 2 days later, 4 points higher
  3. Sept 2014 (MAJOR TOP)– Very tight bollo bands – rallied from lower bollo band on opex Tuesday to upper bollo band on opex Wednesday. MAJOR TOPPED 8 pts higher on opex Friday and declined in to October
  4. July 14 –(MAJOR TOP) Just barely touched the upper bollo on Tuesday, Wednesday and Thursday post opex. MAJOR Topped on the Thursday and declined sharply in to August
  5. May 14 –(minor pullback) Gapped up on opex Tuesday and after a decent intraday rally – closed at the open. Then declined 40pts to opex Thursday before rallying again
  6. Nov 2013 (minor pullback)– Surged above upper bollo on opex Thursday and Friday. Topped 17pts above the first upper bollo breach on Monday post opex, but just pulled back 25pts before moving even higher in to the Thanksgiving holiday top
  7. Oct 13 –(NO proper pullback) Coming out of the MAJOR BOTTOM below the lower bollo band low on October 9th, the market hit the rising upper bollo band on Opex Thursday and continued higher until the Tuesday post opex before pulling back just 20pts before moving higher again
  8. Sep 13 –(MAJOR TOP) Gapped up through the upper bollo on opex Monday and kept moving higher until MAJOR TOP post FOMC on opex Thursday – topped 32pts above the initial upper bollo breach
  9. May 13 –(MAJOR TOP) Surged higher on Wednesday post opex and got 2pts above upper bollo on a Bernanke speech and MAJOR Topped and eventually fell till post June opex.
  10. Feb 13 (minor pullback)– Surged on the Tuesday post opex / post holiday and closed at the upper bollo band. Reversed the next day and fell 45pts over the next 6 days
  11. Dec 2012 –(MAJOR TOP) Surged above upper bollo band on opex Tuesday. Closed at the highs and MAJOR topped the next morning at the open. Fell to the 31st December Major low
  12. Sep 2012 (MAJOR TOP)– Had surged the week before on a dovish FOMC. While the MAJOR TOP was the Friday before, the SPX traded at the upper bollo on opex Monday. Eventually, the market declined until November opex
  13. June 2012(MAJOR TOP) – Gapped up and hit the upper bollo on Monday post opex. Closed near the highs on Tuesday post opex. The highs were 13pts above the initial bollo breach. Market declined 54pts in 6 days
  14. March 2012 (minor pullback) – Surged above upper bollo on opex Tuesday and kept going until minor top on the Monday post opex. Market declined until exactly the level of the upper bollo breach before making one more surge in to early April
  15. Jan 2011 (minor pullback) – Closed at upper bollo on opex Tuesday post holiday and pulled back 25pt to 20 day MA on opex Thursday
  16. Oct 2010 (minor pullback) – Had been rising along upper bollo since early October. Surged above on opex Wednesday, but then pulled back on Opex Thursday. Went on to a slightly higher high on the Monday post opex and then pulled back 25pts on Tuesday post opex before surging again in to November
  17. June 2010 (MAJOR TOP) – Strong all of opex week. Gapped up on Monday post opex and failed and fell to the MAJOR LOW in early July
  18. April 2010 (minor pullback)– Gapped above the upper bollo on Opex Monday and pulled back before surging again on Opex Wednesday and then closed near the highs on opex Thursday – 17pts above the original upper bollo breach. Gap down on Opex Friday and fell to the 20 day MA on Monday post opex 5.5pts below the opex week low and then rallied for a week in to the MAJOR TOP that preceded the Flash Crash
  19. March 2010 (minor pullback) – Closed at the upper bollo on opex Wednesday. Pulled back just 18pts to the Monday post opex.
  20. Jan 2010 – (MAJOR TOP) Gapped above the upper bollo on opex Monday. Pulled back on opex Tuesday and was in a trading range for the opex week. Then re-tested the high on the Tuesday post opex / post holiday and major topped and fell in to early February
  21. Dec 2009 (minor pullback) – touched the upper bollo on opex Monday. Made a 1pt higher high on Opex Wednesday and then declined 23pts to opex Friday before beginning a move that continued along the upper bollo band until January 2010 opex
  22. Oct 2009 (MAJOR TOP) – Hit the upper bollo on opex Wednesday and continued higher until the Monday post opex. There was a quick new high spike on the Wednesday post opex after a decline on the Tuesday and then the market declined sharply in to early November
  23. Sep 2009 (MAJOR TOP) Closed above upper bollo on opex Thursday. Topped on the Wednesday post opex, post FOMC and declined in to early October. Top was 9pts above the original upper bollo breach
  24. August 2009 (minor pullback) – Had declined sharply to start opex week and then closed above the upper bollo on opex Friday. Rallied another 17pts until topping a week later and dropping 38pts in to early September
  25. July 2009 (NO Pullback) – After completing the first major correction of the bull market, the market surged in to July opex week and never looked back. The first real pullback was not until early August.
  26. Aug 2008 – (MAJOR TOP) – Had rallied hard from July opex bottom – Surged above on Opex Monday and topped. This was the rally high for the summer. Market did little during August before plunging in September
  27. May 2008 (MAJOR TOP) – This was the end of the first bear market rally in the 2007 – 2009 bear market. SPX closed at upper bollo on opex Thursday and Friday. A surge ended 13pts above the upper bollo on the Monday post opex and that was the top and the market began the next stage of its bear market decline. Though the first stall point was the lower bollo band.
  28. April 2008 (minor pullback) Had declined from early April in to an opex Tuesday low and then surged until opex Friday. Market just pulled back 2 days and 29pts before heading higher
  29. Sep 2007 (minor pullback) Surged above upper bollo on opex Tuesday peaked on opex Wednesday 35pts above the upper bollo breach and pulled back just 32pts to the Tuesday post opex
  30. July 2007 (MAJOR TOP) – Hit the upper bollo on the Thursday before opex week and continued higher until opex Tuesday before reversing and heading much lower in to August opex
  31. May 2007 (minor pullback) Hit the upper bollo on opex day. Continued 9 pts higher until Wednesday post opex and declined to the 20 day MA 10pts below the opex day low
  32. April 2007 (NO PULLBACK) After the major pullback low in March opex, the market just steadily moved higher. Surged above upper bollo on opex Monday and then just crept along the upper bollo with no discernible pullback
  33. Jan 2007 (minor pullback) – Very tight bollo bands – market got MFI OS at the lower bollo bands in the 2nd week in January and then hit the upper bollo on the Friday before opex week. Market chopped around, but generally went slightly higher until closing at the upper bollo on the Wednesday post opex – 8pts above the original bollo breach. Market then pulled back 24pts in 2 days to the 40 day MA

MID RSI Hourly OB Sell Signal – This signal triggered at 10:30am on Wednesday. These signals are rarely winners and rarely signal the top for the week. Against the odds, though, it did signal the top and was a winner in April 2015. Otherwise, the signals generally signal a top later in opex week or post opex week

MID MFI OS Hourly Buy Signal on Opex Tuesday – This signal triggered at 10:30am on Tuesday morning and the rally immediately kicked off . The interesting thing is that there have only been 7 of these signals since the bull market began. All 7 have been profitable, but NONE of the lows from that signal marked the lows for the opex period.

  • Jan 16 – Bounce lasted 1 day. Low was Wednesday post opex
  • Jan 15 – Bounced ended that day and low was on opex Friday
  • Nov 12 – There was no bounce, the market slid and slide until opex Friday, but the rally from the lows was so powerful that the signal still made money
  • Sep 12 – Just a one day bounce and then a decline to the Wednesday post opex
  • Jul 12 (two signals) – Strong Bounce to opex Thursday and then a sharp decline to the Tuesday post opex
  • Nov 11 – Bounce lasted 1 day and then the market declined in to the major low post opex / post Thanksgiving

April Opex Detail

  • We have consistently seen the market making bottoms during the April opex period and setting up for a very nice rally in to at least late April (2010), if not a lot longer. Prior to 2013, we were consistently making bottoms on the day after (2010, 2011 and 2012) or two days after (2009), but now we have during the week bottoms in 2008 (Tuesday) and 2013 (Thursday) and a special Friday, the week before bottom in 2014 when the market was closed for opex day.
    • 2007: Very minor top on the Monday after opex for 14 pt 1 day pullback – basically a rally continuation
    • 2008: MAJOR BOTTOM on Opex Tuesday – last chance to buy was the Tuesday after opex
    • 2009: Very hourly OB on opex day and fell 49pts in to a MAJOR Bottom on the Tuesday after opex
    • 2010: Minor bottom on the Monday after and a week long 37pt rally rally
    • 2011: MAJOR Bottom on the Monday after and a 14 day77pt rally
    • 2012: MAJOR Bottom on the Monday after and an 8 day 57pt rally
    • 2013: MAJOR BOTTOM on the Thursday and a MEGA rally that let no one in – ie. almost no pullbacks until the Wednesday post May opex.
    • 2014: Good Friday on Opex day – Sold off HARD from employment day to the Friday before opex week and consistent with the Good Friday study, the SPX bottomed on the Friday before opex week and the MID, RUT and NDX bottomed on the Tuesday. SPX had 6 green candlesticks in rallying 71pts and topped on the Tuesday post opex and pulled back 34 pts
    • 2015 – MAJOR bottom on Opex Friday – a strange week with a Monday gap up red candle. Market then made its high on Opex Wed and fell hard on the Friday with a GAP and GO down – but the low was on the Friday just after 2pm and the market rallied sharply

 

April 2016 Turning Point and Employment Preview (as of close of Business on March 31st, 2016)

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.

BIG PICTURE Historical Perspective

While many people have been stunned or at least surprised by the rally, what the market has experienced since Feb 11th is not uncommon for Bear Markets. A few key points:

  • 2007 – 2009 Bear Market – first strong rally lasted from opex Monday, March 17th, 2008 to Monday, May 19th (post opex)
  • 2000 – 2003 Bear Market – First rally lasted 4 ½ months from 14-Apr-00 to 1-Sep-00 and the second rally last six months from Sept opex in 2001 to March opex in 2002
  • The last two bear markets have produced quarterly HAMMER candlesticks right before or after the highs were hit. In 2007, there was a slightly higher high in the 2nd week of October before the market headed lower. In 2000, there were two consecutive quarterly hammer candlesticks in Q1 & Q2 2000.
  • The Central Banks are MUCH more activist than they were in either 2000-2003 or 2007-2009 (until March 2009). This should continue to create more persistent rallies after major bottoms.
  • The market since 2009 (really 2010) has undergone these significant corrections at least once a year with opex and employment having a part in at least one of the corrections and subsequent bottoms. The one BIG and significant difference is that there have been two highs that have not been exceeded – May 2015 post opex and Nov 2015 post FOMC – pre employment
    • May 2010 – July 2010 – Flash Crash and July employment bottom
    • Aug 2011 – Oct 2011 – End of initial violent correction post August employment and bottom prior to October employment
    • Apr 2012 – June 2012 – tops on first trading day of April and May and a final decline till post June employment with the bulk of the damage during May opex
    • Sep 2012 – Nov 2012 – Post early FOMC (pre opex) to Nov opex day
    • May – Oct 2013 – 3 sharp declines and then rallies to higher highs
      1. Post May opex to post June opex
      2. Post Aug employment to before Labor Day holiday
      3. Sept opex to 2nd week of October – post employment
    • Jan 2014 – Feb 2014 & Sep 2014 – Oct 2014 – again two sharp declines
      1. Post Jan opex / MLK holiday to Wed before Feb employment
      2. Sept opex to Oct opex
    • July 2015 – Oct 2015
      1. July opex top to post August opex bottom
      2. Sept opex top to late Sept – pre employment bottom

APRIL Perspective

Overall, April is a month that at the very least ends strong. Since the start of the bull market in 2009, there have been a few  important tops at the end of April (2010) and early May (2011 and 2012 – though the high was actually the first trading day of April in 2012).   It is also a month that quite strangely produces excellent opex buying opportunities. There is really only one year since 1998 where the market did not end with at least strength in to the 26th of April and that was 2002 – which had made a significant top post opex in March. Also, in 1998 there was a post opex top that then resulted in a rally from April 27th to May 4th

Given the rally in March and the limited pullbacks, the tendency for April should be to have a choppier month with rallies and falls almost every week. The one exception to this normal tendency following the March price action is 2010 – which produce a persistent rally that ended with the significant pre Flash Crash top on Monday, April 26th.

Employment

The tendency for April employment is to follow what has occurred post March opex. In this case, as March opex had a minor top and a very short pullback and the market has not yet had any real weakness, the tendency for April employment will be for it to have a top either side of April employment – the best recent example is 2014 when the market topped at the open on employment day and fell sharply for a week (84 pts taking out all of the March price action).

  • There have been 10 employment tops in April – generally the week after the employment report since 1998 vs 6 April employment bottoms.
  • The current conditions, particularly with the close proximity of the upper bollo bands historically indicate at least a minor top and pullback should be near – if a top has not already been hit on Wednesday. (recent examples are Nov 2015, July 2014 and Aug 2013)
  • In 2016, the three employment turns have been post employment
  • In 2015, the last three turns were pre employment.
  • While rare, there have been two MAJOR employment tops at the end of month before the employment report (June – 2011 on May 31st& Nov 2007 – on FOMC day – Oct 31st)

 April Opex

The opex period has the most pronounced tendency of ALL 12 opex periods to produce a buying opportunity. It is not always the most straightforward or obvious buying opportunity and frequently the buying opportunity is the product of a double opex turn with a peak during opex and a bottom post opex.  Of course, in 2015, the market was unusual with a top on opex Wednesday and a bottom 40 pts lower on opex Friday.

  • There have been 14 opex buying opportunities since 1998.
  • If the market falls directly in to opex from an early April top then the likelihood is for an opex week bottom. (Recent examples 2014 and 2013)
  • If the market rallies in to opex week and then falls, the opex buying opportunity is almost always post opex (though it was opex day in 2015)

 FOMC (April 26-27th) and ECB (Apr 21st)

  • Since the start of the FOMC press conferences, which do not occur in April, the April FOMC has only seen minor tops and bottoms at some point around the meeting. The last MAJOR TOP was two days before in April 2010 after the persistent Feb to April 2010 rally.
  • The ECB is a new factor that needs to be watched much more carefully as the market is now turning a lot more right around the ECB meeting. (In March, the low was on the ECB day, in January, the low was on the day before and in December, the top was the day before)
  • Also, it should be noted that AAPL reports earnings on April 25th and for some reason this also seems to have an impact on minor FOMC turning points. In April 2015, AAPL earnings helped produce the minor top the Monday before the FOMC announcement.

 End of April rally in to early May

The period from the end of April in to early May almost always shows strength.  The rallies can be brief and like in 2015 they might just start from April 30th (to Monday, May 4th), but the only two recent years where this late April – early May strength was not observed was 2013 (which rather bizarrely had an odd 1 day reversal on FOMC day, May 1st) and 2010 which had the significant top on April 26th.

 Current Conditions

  • The market has had a great run. The SPY with a current RSI of 69 and MFI is 67 is strong, but not super OB prior to employment.
  • Interestingly, the SPY was MFI OB on Wednesday, March 30th and exited MFI OB on Thursday. This is the same condition that occurred in November 2015 at the most recent high
  • I do not keep stats on it, but the failure for the market to pull back to at least the 20 day MA in March is unusual and generally does not end well – I will produce more research on this later in the month if it might prove relevant.
  • I have read a number of comparisons to the October 2015 rally that ended in November and some of the similarities are definitely valid.
  • More relevant is what happens in April and July when there have just been minor tops post a QUAD Opex – essentially the rally has continued twice in to significant tops (April 2010 and July 1999), otherwise there has been a top and pull back around the employment report:
    • April 2006 – Topped on Wed, the 5th pre employment and fell in to a low for the month on Opex Monday (post Good Friday holiday) – the 17th
    • April 2010 – Market surged most of April until SIGNIFICANT top on Monday, April 26th
    • April 2012- Market topped on first trading day of April
    • April 2013 – Topped on Tuesday, 2-Apr and fell in to employment report – bounced in to new highs and then fell again in to Major Opex Bottom
    • April 2014 – Topped at the open on the employment report and fell sharply for a week
    • July 1999 – Market surged in to significant July opex top
    • July 2014 – Market stalled completely with a top on the employment report (and MID and RUT topped more substantially) before falling in to early August lows
  • The RUT is one index that has shown a tendency to be weak after hitting the upper bollo band after extended runs, minor post opex tops and then one last rally. The RUT hit the upper bollo band on Wednesday and Thursday this week. Most recently this behaviour was seen in Oct-Nov 2015, June-July 2014 and July – Aug 2013. The RUT always struggled until at least opex of the following month

 

Bottom Line:

The market has had a great run off of the February lows.  The rally could continue, but the April tendencies should make it more challenging and choppy for the bulls with at least a minor top expected either side of the employment report. Key things to remember for April are:

  • Even in bear markets, rallies for 2 to 3 months, particularly at the start of bear markets are not unusual.
  • Late April / May has been a month for tops quite frequently since 2009 (2010 – late April, 2011 – start of May, 2012 – start of April and start of May, 2013 – post May opex, 2015 – current all time high post May opex). The one exception is 2014 the early April top took out all of the March price action before bottoming in the April opex period and continuing the rally.
  • With the March price action, the tendency will be for the market to have a series of trading tops and bottoms each week during the month.
  • Best time to establish bullish trading positions in April is some time during the opex period.
  • There is almost always a rally from some point at the end of April in to early May

Overall, with the exception of just the minor two day post opex pullback, the month of March stuck fairly well to the turning point tendencies given the February bottom.  For now, there is no reason to expect April to diverge from the normal patterns, which should mean that both bulls and bears have solid trading opportunities in April.

Ever interesting,

-D

 

GOOD Friday Holiday preview and post opex observations March 2016 (as of close of business on Wednesday, March 23rd):

The markets are closed this Friday for the Good Friday holiday for the 5th time since 1997 on the last Friday of March. While Good Friday is not the best holiday for turns, in recent years, it has showed better turn tendencies.

The remarkable thing about today’s market price action is that for the 3rd year in a row, the market (especially the RUT and MID) had a difficult time on the Wednesday post March opex. In the last two years, the market then bottomed on the Thursday post opex and rallied – that is certainly one scenario that needs to be considered.

 First a brief review of the various historical points:

GOOD Friday Holiday

In general, the Good Friday turns are subdued (ie. minor) and they occur in conjunction with other events, as the holiday is distributed between the last two weeks of March and the first three weeks of April. It should also be noted that given Europe is closed on the Monday after the holiday as well as the Friday, the distribution of the turn day is a bit wider (in 2012 and 2014 the turn was on the Tuesday after). As opex and employment can impact the Good Friday turn potential, the best thing to do is look at the other 4 instances since 1997 of the holiday falling on the last weekend of March.

  • March 29, 2013 – Minor Top on the Tuesday (end of European holiday) after at the Upper Bollo band. Declined for 3 days (till the employment report) and 34 pts.
  • March 25th, 2005 – Minor top on the Tuesday after. The market had been falling since early March. It put in a brief bounce on the Wed post opex in to the holiday and then fell hard on the Tuesday post holiday (March 29th) and bottomed near the close. Market then rallied initially till April 1st and then after a pullback until April 7th
  • Mar 29th, 2002: (Top on the Thursday before) Market had topped on the Tuesday post opex (FOMC Day as well – March 19th) and fallen back through the 200 day MA – the market formed a short term bottom on Tuesday, the 26th and bounced in to the holiday, but topped on the Thursday before (the 28th) and a long, steady decline ensued as the bear market resumed.
  • Mar 28th, 1997 –   Fall continuation – Had peaked on Tuesday post opex – the 25th and fell hard on Thursday, March 27th and again on Monday, March 31st – bounced on Thursday, April 3rd for a few days

That makes one fall continuation, one turn on the Thursday before and two turns on the Tuesday after – sadly, not much of an indicator as to what might happen. Though it is interesting to note that in 2002 and 1997, the market had peaked on the Tuesday post opex and both fell for 5 to 6 trading days before rallying.

Current Conditions

(as of close of business on Wednesday, March 23rd)

The SPY MFI is 75 and the RSI is 62. Going in to a holiday, these readings do not produce much of an edge as there have been many strong rallies in to holidays.

The midcaps did produce an hourly oversold buy signal late on Wednesday, this is not a signal to take when the market has topped post opex

Quad Opex and March opex tops

Tops (generally minor) have been a frequent feature of March opex in recent years.

  • 2012 – Minor top on Monday after opex and a 27 pt decline until the Friday after
  • 2013 (not relevant as FOMC was post opex)
  • 2014 Minor top on Opex Friday and a 6 day 43pt pullback to the Thursday post opex
  • 2015 Minor top on Monday post opex and a 70pt decline until the Thursday post opex

Given the high yesterday, the Tuesday post opex, it is interesting to note that since 1998, there have been just 6 turns on the Tuesday post QUAD opex. 3 have been major turns (Mar 02, Jun 12 & Sep 11) and three were minor (Jun 99, Jun 14 and Sep 10). Except for March 2002 (49 days and 128pts), none of the turns lasted that long – just between 2 and 6 days, though the 107pt slide in 2 days in Sep 2011 was sharp and sudden.

Quarter end

There is no distinct pattern that I can identify for the March quarter end. There does seem to be a slight bias for a low to form around the end of the quarter (7 times since 1998) as compared to a top (3 times since 1998), but it is almost equally likely for the price action to show a continuation of any move started before the end of the quarter

In the March preview, I noted the following

  • Since 2007, the month of March has been primarily one for trading tops or significant bottoms. While a significant top is historically possible, it is not probable, particularly given how the month of March has traded since 2007. Post the employment report (either on Friday or early next week) and late in the opex period post the FOMC (and possibly post opex) are the highest probability times for tradeable tops of some sort.
  • Lastly, the 2002 analog should be remembered given the February lows, the strong rally that has occurred and the proximity of the 200 day MA, the upper daily bollo and the 20 week MA.

The market has started a post opex / post FOMC pullback that should last at least for a few days and at a minimum retrace most of the price seen since at least FOMC day (SPX 2010 low).

  • If there was no Good Friday holiday, recent history (2012, 2014 and 2015) would suggest the initial post opex top pullback would end between tomorrow, Thursday, March 24th and Monday, March 28th
  • Given the number of times, there have been bottoms when Europe returns from the Good Friday holiday, next Tuesday also has potential for bringing an initial end to the pullback
  • Also, given the number of comparisons to October 2015 that I have read, it should be noted that that rally ended on the Tuesday post FOMC in November and the market then declined for 13 days.
  • Lastly, one must keep in mind the 2002 analog as the current price action does continue to have some significant similarities.

Bottom Line:

History suggests this initial pullback should not last too long. We have followed the March tendencies highlighted above quite closely so far this month, so there is no reason to think that this month of March will be any different. For now, this current pullback could end as early as the Thursday pre holiday or weakness could continue in to next week and possibly in to quarter end. For now, there is no strong edge for either side as the pullback should be deeper, but it may not last that much longer.

Sorry not to be able to provide more enlightening insights, but the timing of this particular Good Friday holiday does not offer much strong historical support to a position.

Enjoy the day off,

-D

2002 Analog –   The second major rally of the 2000 – 2003 Bear Market ended above the 200 day MA with an effective triple top (of levels seen in early December, early Jan and then early March)

  • Feb 2002 was notable for its weakness with a low post employment on the 6th of February, a bounce to Feb 14th and then a slightly lower low post opex on Wednesday, Feb 20th
  • The market then exploded higher in to early March – and rallied above the upper bollo for 5 days and also above the 200 day MA before topping on the Monday post a late employment report and then rallying one last time in to the final top on the Tuesday post opex.

 

Opex / FOMC preview for March 2016   (as of close of business on Tuesday, March 15th ):

The market has had a great run since the February 11th lows.  While anything is possible during a Quad witch opex week, the most likely outcome is a top and pullback at some point post today’s FOMC meeting.

All of the evidence is posted in the detailed section. Here are the primary reasons supporting, at least, a minor top and pullback, if not something more substantial.

  • Quad opex week almost always produces major turns, especially with the FOMC during opex week – though March is the month that generally produces the smallest, shortest lasting turns of the Quad witch months
  • When SPY is MFI OB prior to the FOMC meeting, there is at least a minor top and a pullback
  • 2016 makes it the 5th year in a row that we have rallied in to March opex week. The last 4 instances have all produced tops of some sort during the latter part of the opex period (opex Thursday to the Monday post opex), BUT all of the pullbacks have been reasonably short term – the longest lasting 6 days.
  • When rallying from below the 200 day MA in to the opex period, there is a reasonable edge for the rally to fail and at least pull back, if not top more significantly. (see special research below)

While it is possible that Monday’s high is the high for this rally, it is not likely as Quad Witch opex week has only seen one Monday high that was the opex turn since 1998 – that occurred in September 2004.

  • With FOMC during opex week, the primary turn generally occurs post FOMC, though it   – there was a MAJOR bottom on the day before in December 2014 and a major top on the day before FOMC in June 2013 (though the primary turn was a bottom on the Monday post opex)
  • There is an FOMC press conference on Wednesday that will produce volatility – the market generally rallies in to the press conference.
  • Two of the SIGNIFICANT March turns occurred a few days post the FOMC in 2000 & 2002

Bottom Line

The market has been in the situation of rallying in to the start of the March opex week a lot in recent years and in the last 4 years, there has been a top of some sort – though all have not lasted for that long – as the more significant tops have occurred in Q2.   The one difference to the last 4 years is the approach from below of the SP500’s  200 day MA. In the past, this has proven to be an important initial technical barrier after being below it for quite some time – of course, October 2015’s rally above it for 8 trading days was a recent exception, but the move occurred towards the end of the month after the opex period had ended.

I will provide further updates, if I detect an edge later in the week / early next week.

Ever interesting,

-D

Detailed Research

Current Conditions   (as of close of business on Tuesday, March 15th, 2016)

There has clearly been a HUGE rally since Feb 11th with limited pullbacks.  SPY with an RSI of 69 and an MFI of 79 is overbought.  An MFI level above 70 before the FOMC does suggest a top of some sort is likely, BUT the timing and type of top is not a slam dunk certainty.

  • The most recent MFI reading above 70 pre FOMC was in October 2015 and the market – while volatile – kept going until the Tuesday after FOMC in early November – and that was the most recent major high
  • In general, all of the readings above 70 since 2007 were in bullish market periods and the tops were on Fed Day or the day after and were minor, short term pullbacks. Two exceptions were the MAJOR Tops in Sept 2013 (Opex week – Day after top), Dec 07 (Fed Day – week before opex week) and the MAJOR top in early November 2015.
  • For opex, high MFI readings for the SPY – do not have a reliable track record of prediction

GAP Downs on Opex Tuesday – NO EDGE

Unfilled Gap Ups on the Friday – the week before opex week

  • These have occurred more frequently recently.
  • Unless there is a sharp pullback in the next few days, it does appear that a post opex top is the most likely outcome
    • Feb 16 – Opex Wednesday was the high for the week. There was a minor top on the Monday post opex week
    • Jul 15 – Friday was the high for opex week and there was a MAJOR TOP on the Monday post opex
    • May 15 – Friday was the high for the week and there was a minor top on the Wednesday post opex – BUT that is also still the all time high!
    • Apr 15 – Wednesday was the high for the week – market then pulled back sharply till opex Friday before rallying again
    • Feb 13 – Wednesday was the high for the week and there was a minor top on the Tuesday post opex / post holiday
    • Nov 11 – Market topped on opex Tuesday and slid relentlessly until the Friday post opex / post holiday
    • Oct 11 – Market had a volatile week with a low on the Tuesday, a high on the Friday and a minor top on the Monday after opex week that was good for a 36pt pullback

One other note about current conditions, the midcaps have been extremely strong since the Feb lows. They have produced a number of hourly MFI (not RSI) sell signals last Friday and also on opex Monday.

  • Friday before opex week sell signals are mixed. The last one was in May 2015 and the market pulled back until opex Tuesday before heading higher
  • Opex Monday Sell signals are rare – just 11 in the last 7 years. They have generally been winners with the exception of May 2013 – BUT, they rarely signal the high for opex week.

March opex Detail

2016 makes it the 5th year in a row that we have rallied in to March opex week. The last 4 instances have all produced tops of some sort during the latter part of the opex period (opex Thursday to the Monday post opex), BUT all of the pullbacks have been reasonably short term – the longest lasting 6 days.

    1. 2007: MAJOR Bottom (FOMC post opex week) – Wednesday of opex week – rally lasted for 9 days and 71pts
    2. 2008: (FOMC during opex week) Major Bottom – Monday of Opex week – Rally lasted for 7 days and 97pts
    3. 2009 (FOMC during opex week) Major Bottom – Friday of opex week – was very hourly OS – Rally lasted for 6 days and 68pts
    4. 2010: (FOMC during opex week) Major Bottom – Monday after – really a dip from the post FOMC OB Wednesday minor top –then the market really took off   – Rally lasted for 35 days and covered 69pts
    5. 2011: (FOMC during opex week) MAJOR Bottom – Wednesday of opex week   Rally lasted for 21 days and was for 87pts
    6. 2012: (FOMC during opex week) Minor top – Monday after opex – just a 4 day 27pt pullback
    7. 2013: (FOMC post opex week) Minor top on Thursday of opex week and a 25pt pullback to the Tuesday after pre FOMC
    8. 2014: (FOMC during opex week)Minor top – Had FOMC week in it and we topped at Friday’s open, though it was a weird one, as we were down on FOMC day and then rallied all Thursday – nice headfake – Top lasted for 6 days and the market pulled back 43pts
    9. 2015 –(FOMC during opex week) MAJOR TOP on Monday post opex – (FOMC during week) – had gotten quite oversold in early March – bottomed on Wed before opex and rallied hard through opex day – then topped early on Monday post opex and fell hard till Thursday post opex – Market fell a total of 70pts

QUAD OPEX WEEKS

QUAD Witch option expiry has a BAD reputation – but it is actually a great time for traders. Interestingly, it is much more likely for QUAD opex to produce a MAJOR turn (move of greater than 50 SPX points) than a minor turn. Amazingly, there is an equal split between TOPS and BOTTOMS and turns of the major variety outnumber minor turns by close to 3 to 1.  In 2015, ALL of the QUAD Opex weeks produced Major turns.  March and June were tops that occurred on the Monday post opex, September occurred on opex Thursday (FOMC Day) and December was a volatile week with the Major Turn being the bottom on Opex Monday, but there were significant turns also on opex Thursday (high) and opex Friday (low at the close)

Determining opex tops during Quad expiry is difficult but they almost always occur post the FOMC meeting when the FOMC meeting is during opex week

Quad Opex Tops have occurred JUST ONCE on the Monday of opex week since 1998 (minor top in Sep 2004). There have been just three Tuesday tops June 2002, 2003 & June 2008. Also, there was a MAJOR Tuesday top in June 2013 that created a pull back and a great buying opportunity on the Monday post opex.

  • Also, Monday is quite frequently the LOW of the week (50% of the time) (June, Sept & Dec 2015 are recent examples)
  • The smallest pullback from a Quad opex top was March 2013 – when there was just a 20pt Thursday to Tuesday after pullback – BUT it should be noted that the FOMC was on the Wed post opex and we almost always rally in to the FOMC
  • Recent examples:
    • Sept 2015 – MAJOR TOP on opex Thursday (FOMC Day) and a 160pt 12 day fall
    • June 2015 – MAJOR TOP on Monday post opex and a 95pt 15 day fall
    • March 2015 MAJOR TOP on Monday post opex – 70pt fall took just 3 days
    • Sept 2014: MAJOR TOP on Opex Friday post FOMC
    • June 2014 – minor top on Tuesday post opex
    • March 2014 – Wed was FOMC day and we were down on Wednesday, but back up on Thursday and then minor topped at Friday’s open and pulled back 42 pts in 6 days.
    • Sept 2013: FOMC on Wednesday of opex week – MAJOR TOPPED on Opex Thursday and fell in to October

Quad Opex Tops since 2007

  • 2015:
    • Sept: MAJOR TOP on Opex Thursday (FOMC Day)
    • June: MAJOR TOP on Monday post opex
    • Mar: MAJOR TOP on Monday post opex
  • 2014
    • Sep: MAJOR TOP on Opex Friday
    • June: Minor top on Tuesday post opex
    • Mar: Opex Friday – at open (minor top)
  • 2013
    • Sep: Thursday before – Post FOMC (Major Top)
    • Mar: Thursday of opex week   (Minor top)
  • 2012
    • Dec: Opex Wednesday (Major Top)
    • June Tuesday after (pre FOMC) – MAJOR TOP)
    • Mar: Monday after – Minor top
  • 2011
    • Sep: Tuesday after (pre FOMC) – Major Top
  • 2010
    • Sep: Tuesday after (Post FOMC) – Minor top
    • June: Monday After (Pre FOMC) – Major Top
  • 2009
    • Sep: Wednesday after (on Fed day) – Major Top
  • 2008
    • Dec:   Wednesday Before (Major Top)
    • June:   Tuesday Before – (Major Top)
  • 2007
    • Sep     Wednesday before – Gap up Doji (minor top)
    • June:   Friday: Gap up – Doji Day (MAJOR TOP)

March FOMC during opex week

The only recent FOMC meeting that were post opex were in 2007 & 2013. Otherwise, all of the recent March FOMC meetings have occurred during opex week.

The tops in 2010, 2012, 2014 and 2015 all occurred post the FOMC meeting

March Reminders

And a reminder from the March Turning Point preview

Given the speculation in the market, here is the historical perspective on whether a significant top – not just a Major Top and a pullback of 50 plus pts, but a multi week significant top where the SPX pulls back towards the February lows is possible during the month of March

  • Since the 2009 bull market began, there have been NO significant tops in the month of March. All of the significant tops occurred in Q2, if there was one. (there was not one in 2014)
  • Since 1998, there have been four significant tops in the month of March (2000. 2002, 2004 & 2005). So there is some precedence – two occurred post the employment report (2004 & 2005) and two occurred post opex / post FOMC (2000 & 2002)

Special Research

In this section, I was originally going to cover opex weeks when the SPX was below the 200 day MA, but Friday’s close changed that. Here is a similar, but slightly different look.

Rallies in to the opex period that approached the 200 day MA from below after a reasonable period of time below the 200 day MA.

  • It has not happened that often. On the first test of the 200 day MA, it does appear that there is a reasonable edge for a top and at least a pullback if not a reversal. The 2nd test (See Oct 98, April 2003 and Sept 2010) in a near subsequent month, did not result in tops – just brief pullbacks.
  • It does appear that the market expends a lot of energy getting to or near the 200 day MA and then it either pulls back (ie. March 2003) or in most first test instances it fails and goes lower
  1.  Oct 2011 – Briefly pulled back on the Monday post opex for two days and 35pts. Subsequent rally did briefly make it over the 200 day MA on Oct 27th, but then failed and reversed.
  2. Sept 2010 – Cleared the 200 day MA on Opex Monday and rallied. Briefly, pulled back from the Tuesday post opex for two days and then rallied
  3. June 2010 – Market rallied back above the 200 day MA on opex Tuesday and continued to rally until the Monday post opex (pre FOMC) where it topped and eventually fell to new lows in early July
  4. May 2008 – Market Rallied above the 200 day MA on the Monday post opex, topped and that was the END of the two month bear market rally
  5. April 2003 – After testing the 200 day MA from below multiple times the previous week, the market rallied above the 200 day MA on opex Monday and after re-testing the 200 day MA on opex Wednesday, the market was off higher
  6. March 2003 – Rally from early March had its first pullback after topping on opex day just above the 200 day MA. Pullback lasted for 10 days and 55pts (next test was successful)
  7. Jan 2003 – Good rally from late December lows ended on Opex Monday – about 15pts below 200 day MA
  8. May 2002 – Good rally from early May ended on opex Day still some 14pts below the 200 day MA
  9. May 2001 – All up opex week, but peaked on Tuesday post opex still 22pts below the 200 day MA
  10. Oct 98 – Market stalled at 200 day after a sharp rally from early October lows, but after an 8 day battle from the Tuesday post opex (20th), the market finally cleared the 200 day MA on October 29th and a strong rally ensued
  11. Sept 98 – Had broken below the 200 day MA in late August. Rallied up to the 200 day MA on Wed post opex, topped and reversed to fresh lows in October

One additional note, The rally from the closing price on Friday, Feb 12th to last Friday’s close (161 pts) was the GREATEST rally in point terms ever from the start of one opex week to the following one.  Unfortunately, there is no edge. The previous greatest rally was November 1998 (147 pts) and the market just had a minor top – essentially it kept going.

 

March 2016 Turning Point and Employment Preview  (as of late in the day on Thursday, March 3rd, 2016 )

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.

Overall, since 2007, the month of March has been one for significant bottoms (2007, 2008, 2009 & 2011) and shorter term trading tops and bottoms. In March 2010, the market rallied almost continuously for the whole month. In 2012 and 2013, there were strong rallies with pullbacks and in 2014 and 2015, there were both good trading tops and bottoms.

Given the speculation in the market, here is the historical perspective on whether a significant top – not just a Major Top and a pullback of 50 plus pts, but a multi week significant top where the SPX pulls back towards the February lows is possible during the month of March

  • Since the 2009 bull market began, there have been NO significant tops in the month of March. All of the significant tops occurred in Q2, if there was one. (there was not one in 2014) (see below for details)
  • Since 1998, there have been four significant tops in the month of March (2000. 2002, 2004 & 2005). So there is some precedence – two occurred post the employment report (2004 & 2005) and two occurred post opex / post FOMC (2000 & 2002)   (see details below)
  • The one potential support for a significant top is that the 20 week MA has served as an initial barrier for bear markets and the market is becoming somewhat overbought in to a critical turning point. The SPX 20 week MA is at 1996
  • It should be noted that there were significant February bottoms in 2010 (rally lasted until late April), 2014 (rally lasted 30 days until March 7th – employment day) and 2015 (rally lasted 23 days – before ending on the Wednesday post Feb opex), so based on the duration of the last two significant February rallies, the market is entering the timing band for the end to the current rally.

In addition to the above, here are the March highlights:

First Day of March – Green Candle

(already noted on 25-Feb). Tuesday’s strong green candle was the 13th occurrence for the first trading day of March out of the last 19.  It suggests that March may follow its normal somewhat bullish course.

 Employment

    • March employment is not always a turn, particularly since 2009 as there were rally continuations in 2010, 2012 (minor pullback ended on the Tuesday before) and 2013.
    • In March 2014, there was a minor top on employment day and a one week 45 pt pullback
    • In March 2015, the market topped at the close on Monday, March 1st and fell in to a major bottom on the Wednesday post employment
  • The last time the employment report saw a rally continuation was in Nov 2014.  Rally continuations are definitely a higher possibility when the market has seen a significant oversold bottom in the previous month – so there is no guarantee of a top and turn for this employment report
  • In January and February 2016, the turns (both bottoms) were on the Monday after. In September, October, November and December 2015, the turns were before the employment report. Basically, there is NO EDGE with respect to the timing of a potential turn, though post employment is generally the normal time given the rally and the technical.

 

 Quad Opex and FOMC in the same week

  • When the FOMC meeting is during Quad opex week, there is a much greater than normal probability of a MAJOR TURN. This is particularly true in September and December (see 2013, 2014 & 2015 as examples), but the edge has diminished in March and June quad opex weeks to a certain extent – there were only minor tops in March 2013 and 2014. There was a MAJOR top and a 3 day 70 pt slide post opex in March 2015. In most instances, the primary FOMC / Opex turn occurs post the FOMC press conference.

 

 GOOD Friday in March

  • The cash equity markets will be closed on Friday, March 25th.
  • In recent years, the Good Friday holiday has started to produce more turns on either side of the holiday.
  • This will be the 5th occurrence of the holiday during the month of March since 1998. The other 4 March instances provided decent trading opportunities.
  • More info and thoughts on the possibilities will be provided nearer the holiday

 

 Current Conditions

  • The market has had a very strong rally out of the February 11th low. At 22 days in length, it is just at the start of the timing band for an end to some of the other super strong V shaped rallies that we have seen during the bull market since 2009.
  • On a weekly basis, the market is just coming out of a weekly MFI oversold condition. The last time the SPY experienced this condition was in August 2015 and prior to that August 2011. Interestingly in both instances, after the weekly oversold condition was eliminated, the markets sold off after rallies in to September Quad witch opex and the FOMC meetings (2011 was post opex and 2015 was post the FOMC meeting). This would suggest that March opex week could be significant.
  • On a daily basis, the current 99% stochastic reading is as extreme as one can basically get, but the daily RSI reading of 70 is not that extreme and the 64 MFI reading is not at all extreme.
  • The other two March months since 2007 that had similar technical readings were 2013 (late employment report continuation till opex Thursday) and 2014 (top at the open on employment day and fall for a week)
  • In comparison to the stochastic readings prior to other employment reports, the current market is at the top. Others near that level of strength were June 2014 (minor top on Monday after), July 2011 (Major top at the close on the day before), Nov 2010 (Major top on the Tuesday after), March 13 (rally continuation)
  • The 70 RSI reading is the 12th most extreme reading since Jan 2007 (110 employment reports). Of the other 11, there were 3 MAJOR TOPS (1 the day before, 1 on the day and 1 on the Tuesday after), 5 minor tops (3 on the employment day and 2 the week after) and 3 rally continuations.

 

 Bottom Line:

Since 2007, the month of March has been primarily one for trading tops or significant bottoms. While a significant top is historically possible, it is not probable, particularly given how the month of March has traded since 2007.  Post the employment report (either on Friday or early next week) and late in the opex period post the FOMC (and possibly post opex) are the highest probability times for tradeable tops of some sort.

  • When rallying from oversold lows in February, the strong rally in March 2010 is a cautionary reminder, while the trading tops in March 2014 and March 2015 provide some hope for the more bearishly inclined.
  • Lastly, the 2002 analog (which is covered in the special research below) should be remembered given the February lows, the strong rally that has occurred and the proximity of the 200 day MA, the upper daily bollo and the 20 week MA.

Lastly, as I just reminded myself in my trading log, the purpose of strong bear market rallies is to convince the vast majority that the worst has passed and it is okay to step back in to the market on the long side. At SPX 1993, it does feel like that SPX 1810 low just 3 weeks ago is a long, long ways away.

Super interesting and challenging right now,

-D

SPECIAL Research – Significant Highs in March since 1998 and H1 since 2009-2016

Since 1998 and particularly since 2005, the month of March has been characterized by trading tops and a few MAJOR bottoms (2007, 2008, 2009, 2011, 2015) that occurred after weakness started in late February.

The four significant March tops since 1998 were as follows:

  1. 2005 : SIGNIFICANT Top on Monday, March 7th (post employment) above upper bollo at 1228 – decline lasted till mid April – but a higher high was not seen until July 2005
  2. 2004 – Friday, March 5th – employment day – Significant top   – The final low from the March highs was seen in August 2004 and the March high was not exceeded until November 2004
  3. 2002 – MAJOR TOP on Tuesday post opex – FOMC Day on March 19th – This was the last great selling opportunity before the long slide in 2002 that finally ended in October 2002. The high was not exceeded until November 2004
  4. 2000 – Friday, the 24th – way above upper bollo after a 9 day surge (FOMC was on March 21st) – This was the last blow off top of the 1999-2000 bull market. The initial fall lasted until mid April – but clearly the market went a lot lower for a long time. Tope was not exceeded until 2007!Significant H1 tops since the 2009 bull market began
  • 2009: Employment day in June – till post employment and post holiday in July
  • 2010: 2 days before FOMC in late April then FLASH Crash and a fall in to early July
  • 2011: Start of May until middle of June opex
  • 2012: 1st trading day of April until post employment in June
  • 2013: Wednesday, Post May opex to Monday post June opex
  • 2014 – None
  • 2015 – Wednesday post May opex until Monday, post August Opex
  • 2002 Analog –   The second major rally of the 2000 – 2003 Bear Market ended above the 200 day MA with an effective triple top (of levels seen in early December, early Jan and then early March)
  • Feb 2002 was notable for its weakness with a low post employment on the 6th of February, a bounce to Feb 14th and then a slightly lower low post opex on Wednesday, Feb 20th
  • The market then exploded higher in to early March – and rallied above the upper bollo for 5 days and also above the 200 day MA before topping on the Monday post a late employment report and then rallying one last time in to the final top on the Tuesday post opex.

 

End of February Turning Point (as of close of business on Thursday, February 25th, 2016):

Now that February is coming to an end, my radio silence will slowly recede, as I have been able to do a lot more research back to 1998 – as it is important to cover the 2000 – 2003 period to get some better bear market perspective. Here are just a few historical comments that might provide some helpful perspective – some are repeats from my last comment on 12-Feb.

(Repeat Comment) From the research that I am working on with respect to bearish markets, it is clear that the 20 day MA and the upper bollo are key resistance points and more than a few times after a low was tested (but held) the market then rallied to near the upper daily bollo band before rolling over again (Feb 2003 and Feb 2008 are two examples that had this price action – the price action of the last few days looks quite similar to late Feb 2008 – check the charts)
• Given the upper bollo is around 1977 – this is something to be aware of.
• One difference is that in 2003 – the upper bollo was still declining and in 2008 it was only rising gently

(Repeat Comment) The period from Feb 24th to Feb 29th does show a tendency for at least a minor turn if not something more significant. A few examples
– Feb 2003 – Made a low on Tuesday, Feb 25th and rallied to a high near the upper bollo on Monday, March 3rd and then fell to new lows on 12-March that completed the bear market
– 2008 – choppy uptrend to test the early Feb highs ended near the upper bollo on Wednesday, Feb 27th)
– 2015 – Market peaked on Wednesday, Feb 25th and held that high until late April – though the next low from that high was on March 11th (and the first trading day of March produced a VERY strong rally that tested that high, but did not break it)

While I will cover it more thoroughly in the March preview, it should be remembered that since 2007, March has been an excellent month for market bottoms, but a month that was only good for short term trading tops – in fact, the last significant March tops occurred during the last market cycle with significant tops occurring in March 2000, 2002, 2004 and 2005

In terms of the next few days, it is important to be aware that the last day of Feb has a tendency to be down, particularly in the RUT, while the first trading day of March is VERY frequently a GREEN candlestick (only 2009 and 2011 since 2004 were not green candlesticks for the IWM)

Feb 2016 opex week was the 5th strongest opex week since 2007 and the 11th strongest since 1998. Since 2007, the moves have generally continued for a few weeks (recent examples – Nov 15 – continued until 2-Dec-15 and Dec 14 continued to rally until Dec 29th). Prior to 2007, strong opex weeks were more bearish and resulted in many post opex tops.

Since August 2015, the end of the month / beginning of the month has shown a lot of significant turns – this is something new and may be a part of the market’s character change
– Aug / Sep 2015: Top on Friday, the 28th and bottom on Tuesday, Sept 1st with a 90pt spread!
– Sept / Oct 2015: MAJOR Bottom on Tuesday, Sept 29th
– Oct /Nov 2015: MAJOR TOP on Tuesday, Nov 2nd
– Nov / Dec 2015: MAJOR TOP on Wednesday, Dec 3rd
– Dec 2015 / Jan 2016: Major Top on Wednesday, Dec 29th
– Jan / Feb 2016: MAJOR TOP on Monday, Feb 1st (after a super strong rally on Friday, Jan 29th)

From the above evidence, with Friday’s potentially strong gap up (as of 6am est) and approach of the upper bollo band, there are some valid reasons for the bulls to be cautious in the very short term. The last few years have seen end of Feb weakness (either on the last day which would be Monday or the last few days and strength at least on the first trading day of March with a green candlestick).

I will be back with more info about the month of March on either Monday or Tuesday.

Ever interesting,

-D

February 2016 Turning Point Preview (as of close of business on Tuesday, February 2nd, 2016):

As I have written more than a few times, the character of the market has changed. The persistent bull has ended and we are transitioning in to a different market for some unknown period of time.   While the turning points of employment, opex, holidays and the FOMC will still be critical points for the market, the recent 2009 – 2015 history will be less valuable and for the time being the 2000 – 2003 and 2007 – 2009 periods should provide more  helpful perspective. Every bear market is different, but here are some key points from those two periods are as follows:

  • Once countertrend rallies end and downward market momentum takes over, the turning points tend to not matter for 3 to 6 weeks or even longer
  • Opex is still VERY important for tops and bottoms unless early in a new downtrending cycle
  • Employment, holiday and FOMC have all contributed to significant turns, but there have also been numerous instances in bear markets where those turning points have just been run over by selling pressure.

At the best of times, February is a difficult month to predict, and the 2016 price action just reinforces that point. There are 5 ‘bear market’ February months since 1998 that might provide some sense of what might occur this month.

  • 2009: Early month bottom on Monday, Feb 2nd and then a rally to post employment top on Monday, Feb 9th and then reasonably relentless fall in to final March bottom (note: Major bottomed in January post opex and post MLK – rally ended on Jan 28th – FOMC day – and high was re-tested on Monday, Feb 9th post employment)
  • 2008: Early month top on employment day, Feb 1st and a decline till Feb 7th and then a choppy rally that did not make a new high for the month on Wednesday, Feb 27th    (note: Major bottomed in January post opex and post MLK and rally ended on employment day, Feb 1st)
  • 2003: Slight bounce from late Jan ended on Monday, February 3rd and market declined until Thursday, Feb 13th and then a sharp 3 day bounce in to opex. Market was fairly range bound until slipping to a post opex low on Tuesday, Feb 25th which produced a bounce till Monday, March 3rd
  • 2002: Top for the month was on employment day, Friday, Feb 1st and market bottomed on Wed, Feb 6th and rallied in to opex and topped on the 14th – Market then fell to new lows for the move on Wednesday, Feb 20th and then started a sharp rally in to March
  • 2001: 6 week December – January rally ended on 31-Jan and market began relentless February decline that briefly paused during the start of opex week, but did not end in February until a sharp oversold bounce from Friday, Feb 23rd to Tuesday, Feb 27th

There are a number of features to the month of February that one should be aware of:

  • First week of February can be critical – During the bull market, the market saw important bottoms (2010, 2014 & 2015) or rally continuations. In the 5 bear market periods, only one (2009) had an early month low, the other 4 declined from last day of January or first trading day of February (2008, 2003, 2002 & 2001). Right now, the market has made an early high on Monday, Feb 1st – so the extent of the current decline must be watched carefully.
  • EMPLOYMENT: Significant tops were experienced in 2009 (Monday after), 2008 (on employment day, the 1st) and 2002 (on employment day, the 1st). In 2001 and 2003, the employment report had no discernible impact and declines continued.
  • President’s Day Holiday in opex week: No impact is expected as is generally the case with the holiday occurring during opex week. In 2009 and 2003, the holiday was at the start of opex week. In 2009, the market declined just continued. In 2003, a sharp bounce in to opex week ended near the close on Tuesday, Feb 18th post the holiday
  • Opex: The opex period, particularly the post opex period has produced a number of bottoms post opex. This is one to remember if there is a decline post opex
    • 2009 – Just a sharp Monday to Wednesday post opex bounce
    • 2008 – Just a trendless choppy period that did not end until a top on Wednesday, Feb 27th
    • 2003 – Bottomed on Tuesday, the 25th post opex and rallied in to March
    • 2002 – Bottomed on Wednesday, Feb 20th post opex and post holiday and rallied in to March
    • 2001 – Ugly decline saw a brief bounce from Friday, Feb 23rd to Tuesday, Feb 27th
  • Late February turns – this is one to be aware of as in 14 of the last 18 years, there has been a turn (minor or major) from some time between Feb 24th (this year falling on the Wed post opex) to the end of the month. (more info will be provided closer to the time)

Current Conditions provide no edge – the MAJOR post opex / post MLK bottom in January has eliminated the extreme oversold conditions that existed from the employment day until the middle of last week.

There will be no employment preview. There is not enough information about how the market will trade during this bearish period to make an employment preview relevant and useful.

Bottom Line:

February is generally a difficult month to trade from a turning point standpoint, and it is particularly so during bear markets.

  • The rally since the post opex / post MLK bottom on Wednesday, Jan 20th has alleviated the oversold conditions. The market could continue to rally for a period of time given how oversold the market was at the lows, but it is (sorry about this) equally likely that the decline has already resumed since Monday’s high at SPX 1947. (like occurred in 2008)
  • The post opex period will probably provide the highest probability turning point edge – but it will depend on the conditions prevailing then.
  • The period from Wednesday, Feb 24th to Monday, February 29th may also provide an edge

Bottom line: the advice I provided in January still applies – it is best to keep your risk under control and be flexible in one’s market view. Bear markets are challenging and unpredictable and each one tends to surprise in both directions.  It will take a few months before one can get a better sense of how this market will trade.

Ever interesting, but definitely more challenging,

-D

 

FOMC Turning Point Preview for January 2016 (as of 12pm EST on Tuesday, January 26th, 2016):

I have been hesitant to publish this preview as the character of the markets (as noted previously) has changed and it will take some weeks, even months to ascertain the markets’ turning point tendencies for the FOMC meeting.

Since 1998, the FOMC meetings have frequently marked key turning points in the markets. This has been particularly true since 2007, but the advent of the press conferences on alternate meetings has meant that the non press conference FOMC meetings are losing their edge for clear turning points compared to opex weeks.

This week’s FOMC meeting is a non press conference meeting.

January FOMC meetings no longer have a distinct characteristic, but there are a few January FOMC meetings and first weeks of February to highlight as the combination of the two do have a distinct history in many years. The interesting point to highlight is how frequently the first week of February has become an important time for turns

    • January 2015 – MAJOR BOTTOM on Monday post Fed day – first trading day of February – the market had peaked on the day of the ECB meeting (Jan 22nd) and fallen sharply. Fed day was a gap up that failed and the market fell hard until the Monday post FOMC.
    • January 2014 – MAJOR BOTTOM on first Wednesday in February after a large down Monday
    • January 2009 – Major Bottomed on the Tuesday post opex and MLK – rallied until topping near the close on FOMC day and then fell to a higher low on Monday, Feb 2nd and then rallied again
    • January 2008: Major top – Monday After – Market had had the MAJOR Kerviel bottom on the Tuesday post opex / post MLK (22nd) . It was a VERY volatile period – market actually rallied hard and then fell hard on Fed day and then reversed higher after a gap down on the day after the FOMC meeting and surged for two more days until topping on Monday, Feb 4th
    • First week in February overall has been a key time in the markets since 1998
      • 7 times there has been an important bottom during the first week (2000, 2002, 2004, 2009, 2010, 2014 & 2015)
      • 5 times there has been an important top (1999, 2001, 2003, 2006 & 2008)
      • 6 times there have been rally continuations or brief dips and then continued rallies
      • Declines in to February since 1998 have not continued past Wednesday, the 6th (2002) The market bottomed on the 5th in 2010 and 2014

Bottom Line

The market is challenging and has changed character. It is best to keep your risk under control and be flexible in one’s market view. While there is likely to be some significant volatility post the FOMC announcement, the first week of February may provide a better sense of the market’s next direction.

If the market rallies through the FOMC in to next week, there could be a significant top (like in 2008) or a rally continuation like was seen in 2011, 2012 & 2013, but if the market reverses and falls in to next week (like in 2009, 2010, 2014 & 2015), then a significant bottom is likely.

-D

FOMC

Generally, FOMC meetings are times for turns – but the timing and consistency of the turns for the non press conference meetings has become much more erratic.

  • The window of opportunity for an FOMC inspired turn point is from 2 days before to 4 days after (Tuesday of the following week)
  • Here is what has occurred in the last few FOMC meetings that have NOT had a press conference or been combined with the employment report or opex
    • October 15 (28th) – After a brief pause post opex, the market resumed its surge that had started in late September. Fed day was a strong up day and the market continued higher until the following Tuesday (3-Nov)
    • July 15 (29th) – After falling sharply from the Monday post opex top (20th), the market bottomed on the Monday before FOMC until topping on the Friday post FOMC.
    • Apr 15 (29th) – minor top on the Monday before and a bottom on the day after. Market had surged from the opex day (17th) low, but the gap up on the Monday before the FOMC and the market fell until late on the day after the FOMC day. (It then rallied for two days before falling again)
    • Jan 15 (28th) – MAJOR BOTTOM on Monday post Fed day – first trading day of February – the market had peaked on the day of the ECB meeting (Jan 22nd) and fallen sharply. Fed day was a gap up that failed and the market fell hard until the Monday post FOMC.
    • Oct 14 (29th) – After the MAJOR October opex bottom, the market surged higher. FOMC day was volatile, but the market continued higher until a brief two day pullback on the Tuesday post FOMC
    • Jan 14 (29th) – Had peaked on the Tuesday post opex and post MLK (Jan 21st) While there was some volatility on the 3 days around the meeting, the market continued to fall until early February with the largest down day occurring on Monday, Feb 3rd – though final low was on Wednesday, Feb 5th.
    • Oct 13 (30th)- minor top on Fed day and a 3 day pullback. Had been rallying strongly since major bottom on Oct 9th

Overall, there is no strong edge to play. If a move does continue in to the following week, then the probability of a turn does increase as 3 of the 4 moves in to the following week did result in major market reversals.

January FOMC Meetings

  • The January meeting as it is not aligned with either an employment report or opex no longer has a clear tendency
    • 2007 (31st): Minor Bottom – Friday before. Surged higher on FOMC day and then continued slowly higher until a short sharp pullback on Feb 9th & 10th
    • 2008 (30th): Major top – Monday After – Market had had the MAJOR Kerviel bottom on the Tuesday post opex / post MLK (22nd) . It was a VERY volatile period – market actually rallied hard and then fell hard on Fed day and then reversed higher after a gap down on the day after the FOMC meeting and surged for two more days until topping on Monday, Feb 4th
    • 2009 (28th): Major Top on Fed Day –after bottoming on the Tuesday post opex and MLK, the market had a choppy period until it broke higher on Monday, Jan 26th. The market gapped up and closed near the highs on FOMC day, but that was the end of the rally and the market fell hard until Monday, Feb 2nd.
    • 2010 (27th): Minor Bottom – 2 days after – Market had topped on the Tuesday post Opex / post MLK (the 19th) and fallen hard. The market briefly bottomed on the Friday after the FOMC meeting and rallied for two days, but then fell away again in to the MAJOR winter bottom on employment day, Friday, Feb 5th
    • 2011 (26th): Minor top – 2 days later – After a relentless surge that started in late November, the market had a sharp pullback to below the 20 day MA on the Friday post FOMC and then continued higher
    • 2012 (25th): Minor top – Day after – Like in 2011, the market had been surging since the previous year. The market gapped up and reversed on the day after the FOMC meeting and fell until Monday, Jan 30th and then continued higher
    • 2013 (30th): Rally continuation – VERY Bullish month – very minor pullback of 13 pts from Fed day to day after.
    • 2014 (29th) – MAJOR TOP There was a post FOMC bounce during a significant decline that had started post opex / post MLK – after a down FOMC day, there was one day of misdirection on the day after – the market then topped and fell hard in to early February
    • 2015 (28th) MAJOR BOTTOM on Monday post Fed day – first trading day of February – the market had peaked on the day of the ECB meeting (Jan 22nd) and fallen sharply. Fed day was a gap up that failed and the market fell hard until the Monday post FOMC.

CURRENT CONDITIONS

Clearly last week the market got deeply oversold. Daily conditions are now neutral. The interesting thing is that the weekly conditions – while not at the most extreme prior to an FOMC meeting are definitely near an extreme since 2007.  Here are key points about those weekly extremes entering the FOMC meeting:

  • Last time was Jan 2015 when the market bottomed on the Monday post FOMC
  • Since the bull market began in 2009, the only other instance was June 2011 – the market eventually surged in to the 2nd week of July, but did chop around for a period of time post FOMC. It has bottomed on opex Thursday. The FOMC meeting was post opex.
  • The other instances were in 2008 & 2009. Most notably in Jan 2008 & Jan 2009 when the market bottomed post opex / post MLK, but then topped post FOMC – on the day in 2009 and on the Monday after in 2008.

 

Opex and MLK preview for January 2016  (as of pre market on Tuesday, January 12th, 2016):

This preview is really a combination of the employment preview from last week and the December 2015 opex preview, as little has changed from what I noted on Thursday AND there are a lot of technical similarities between the December 2015 opex week and this current market.

Given the large gap up that is indicated by the futures, the market is continuing to follow what occurred this past December (Below lower bollo on Friday before opex, low on Opex Monday, Gap up on opex Tuesday, high at the open on Opex Thursday) This fits with the scenarios that I laid out at the end of last week in my employment preview summary when I wrote:

I can provide lots of statistical extremes that the market is facing right now. Some of them provide evidence that there will be a significant bounce soon. Others like the comparability of the current technical condition to August 2011 highlight that there is still SIGNIFICANT risk to the market. No doubt there will be a rally soon, but based on Aug 2011, it could be from substantially lower levels.

The opex period should provide relief, which means there are three scenarios to keep in mind for the employment report and the next ten days

  1. Market bounces from employment day or early in opex week, tops, pulls back and bottoms late in opex week (Fri in Jan 2015) or post MLK / post opex (Tuesday after in Jan 2008 & Jan 2009)
  2. Market continues lower in to next week and finds a bottom and has a more lasting rally starting Monday or Tuesday (Nov 2015 and Dec 2014 are good examples)
  3. The market continues to suffer with limited to no bounces and bottoms late in the opex period or post opex and MLK – this is definitely the most extreme scenario, but it is one to be aware of.

There really is NO CHANGE to those scenarios, though I did do some more research regarding the SPX closing below the lower bollo on the Friday before opex. There were only two instances between 1998 and 2006. (I have updated the research below). Interestingly, both had holidays at the end of the opex period. In both instances, there were sharp rallies. In April 2000, the rally lasted two days and then there was a 3 day pullback until the day after the holiday. In January 1998, the market rallied until the close of the day post MLK and then retraced about 50% of the rally over three days.

One must also remember the tendency to rally in to the ECB meeting since it changed to an every 6 week meeting schedule. The next meeting is on Thursday, January 21st.

Bottom Line

Given the history of opex and MLK and the extreme technical conditions, the likely scenario remains that the market will bounce for at least a few days, if not for a longer period of time.   The strong tendency for the market to bottom and at least bounce post the employment report also supports this scenario.

Still, I would be remiss in not re-emphasizing that the character of the market has changed and until a few days after the MLK holiday, the risks for the market will remain high. In January 2008 and January 2009, the selling was relentless until the post holiday, post opex bottoms. There were bounces and gap ups, but the selling was still relentless. Also, in the October 2014 opex week, the market had an extremely positive start to the day on opex Tuesday, only to reverse lower and have that final 60pt move lower on opex Wednesday before the final bottom was formed. (I do not favor this analog, but it is a good one to remember)

I will provide further updates when the market provides more evidence as to what might transpire.

-D

Detailed Research

Current Conditions  (as of cob on Monday, January 11th)

AMAZINGLY, three of the technical conditions noted at this past December’s opex week are AGAIN occurring:

  • SPX close below lower bollo on the Friday before opex week
  • Hourly midcap buys on the Friday before opex week
  • Gap Up on Opex Tuesday

As a reminder, in December we had the primary low on Opex Monday, a Thursday high at the open and a re-test higher low at the close on opex Friday)

Monday’s late rally improved the technical conditions of the SPY somewhat (RSI= 25, MFI = 32), but it is still very weak technically relative to most opex weeks. The only times in the last two years that the SPY has had an RSI (9) under 25 was in August 15 (Monday post opex MAJOR bottom), Dec 14 (Opex Tuesday MAJOR bottom), Oct 14 (Opex Wednesday MAJOR bottom), Aug 14 (Thursday before opex bottom) and Jan / Feb 14 (Major Bottom Wednesday before employment) – ALL marked major bottoms, though clearly in August 15 and October 14 the market went down a lot before forming a bottom

Note – the MID and RUT are even weaker technically

GAP Ups on Opex Tuesday (SAME condition occurred in Dec 15)

Gaps up on opex Tuesday are reasonably rare – there was one this past December. Before that, the last ones were in January and February 2014 – the markets continued higher for at least a week (Jan 2014).   The general rule of thumb is that sharp gap ups on opex Tuesday in markets that are trending down is more of a negative as the market has tended to reverse near the closing level or slightly higher later in the week and go lower for at least a few days if not longer. There have only been 13 significant Tuesday gap ups in the last 6 years. 6 of these occurred in corrective markets. The last corrective instance was April 2013 when the market bottomed on opex Thursday. (The others were Oct 12 – major top on opex Thursday, April 12 – Monday post opex bottom, Jun 11 – opex Thursday bottom, Aug 10 – Wednesday after bottom, July 10 – Tuesday after bottom, May 2010 – Tuesday after bottom)

Hourly midcap Buys on Friday before Opex (SAME condition occurred in Dec 15)

There have only been 10 of these signals since 2009 – they are VERY RARE! The last one was October 2014 when there was the MAJOR BOTTOM on Opex Wednesday well below the lower bollo. Taking the hourly signal has only worked Twice (Oct 2012 – rally in to opex and a MAJOR TOP on opex Thursday and Sept 2011 – gap down in to opex Monday and an all opex week rally), otherwise, there should be a lower low on opex Monday and a MAJOR OPEX LOW later in the week!)

  • 1 MAJOR Bottom on Friday before opex (Apr 2014). MID and RUT bottomed on opex Tuesday
  • 2 strong bounces and MAJOR TOPS (Oct 2012 – Friday before opex low and MAJOR top on opex Thursday) and Sept 2011 – opex Monday bottom and all opex week rally and top on Tues post opex (pre FOMC))
  • 8 Bounces and then later in opex bottoms
    • Opex Tuesday Bottom – 1 (Nov 2010)
    • Opex Wednesday Bottom – 2 (Mar 11 and Oct 14)
    • Opex Thursday bottom – 1 (June 11)
    • Opex Friday bottom – 1 (Nov 12)
    • Monday post opex bottom – 1 (Apr 11)
    • Tuesday post opex bottom – 1 (May 2010)

o   Monday and Friday opex bottoms – 1 (Dec 2015

MDY Daily MFI OS for opex (SAME condition occurred in Dec 15 – though it was later in opex week – opex Thursday)

This is not quite as powerful a signal as when the SPY has an MFI (14) below 25, but it is close. The last time we got this signal was on Opex Thursday in December 15. The market bottomed the next day and rallied in to the post Christmas top on December 29th. When MDY is daily MFI OS for opex, there is always at least a strong bounce. Though in August 2013, May 2012 and August 2010, after the bounce the market went on to make lower lows before forming more lasting bottoms.

SPX below lower bollo on Friday before opex week

(UPDATED since last Friday RESEARCH)

Closing below the lower bollo band on the Friday before opex week is a rare condition. It has only occurred 6 times since Jan 2007 and two other times between 1998 and 2006

  • Three times it bottomed on the Friday before and rallied – one was a long lasting rally (Apr 2014 – short opex week), one was a sharp bounce (Oct 2008) and the third (April 2000) was a SHARP two day bounce, a 3 day pullback (around the Good Friday holiday) and then a final rally that topped out at the end of April
  • Five times it bottomed during opex week – once there was a sharp opex Monday to opex Wednesday rally (Nov 2007), twice lasting bottoms were made on opex Tuesday (Dec 2014) and opex Wednesday (Oct 2014) and in December 2015, there was an opex Monday low, a sharp rally in to a high at the open on Opex Thursday and then the Monday low was re-tested, but not broken at the close on Opex Friday

January opex Detail

Since 2007, the timing of the MLK holiday is important – there have been four post holiday post opex turns in 2008, 2009 , 2010 and 2014 with 2013 being the only year that we saw NO turn with MLK post opex.

  1. 2007 (early MLK): Minor Bottom on the Monday after with a 2 day bounce
  2. 2008: MAJOR BOTTOM on the Tuesday after post MLK holiday
  3. 2009 MAJOR BOTTOM on the Tuesday after post MLK holiday
  4. 2010: MAJOR TOP on the Tuesday after post MLK Holiday
  5. 2011 (early MLK): Minor bottom on the Thursday
  6. 2012 (early MLK):   VERY Minor top (16 pts) on Monday after
  7. 2013 – Nothing just an unrelenting surge
  8. 2014 – A Monday bottom and a Wed top during the week, but then rally continued until a MAJOR TOP on the Tues post holiday for SPX and the Wed for MID and RUT – down in to early Feb
  9. 2015 MAJOR Bottom on Opex Friday – Tuesday high. Market appeared to bottom on Opex Wed, but SNB removed chf peg on Thursday – market then bottomed on opex Friday and took off for 6 days (Holiday was post opex)

MLK Holiday

As the MLK holiday detail is almost identical to the information for January opex, there is no need to provide the detail information. But it should be noted that a MAJOR top turn, if there is a rally in to the holiday is not that likely. Final pullback lows before the holiday (like in 2015) or post the holiday (2008 and 2009) are higher probability turns than a rally given the current very weak market technical conditions.

While it is too early to tell whether the market will rally or fall in to the MLK holiday, if there is a rally, there have been a few instances (Jan 1998, April 2000 and March 2008) where there has been sharp rallies and then strong pullbacks that created higher lows before or after the holiday.

Lastly, there is an ECB meeting on Thursday, Jan 21st and the market has rallied in to all of the ECB meetings since the 6 week schedule was adopted in January 2015 with the earliest top being the Wednesday before the meeting in December 2015.

 

January 2016 Employment Turning Point Preview  (as of close on Thursday, Jan 7th ):

There is not a lot to say. The character of the market has changed in 2015 (and now 2016) for employment. Employment used to be all about rallies and topping on the report or after it. Now, the employment report has been seeing significant weakness prior to the report and in quite a few cases through the report.

Given the top on Dec 29th, there really are no comparable instances except for the severe down periods of January 2008 and August 2011. Both kept going significantly lower in to the week post employment.

I have included a significant amount of detail below, because there are a few key things to focus on:

  • Late employment reports – have always seen rallies except Jan 2009 when there was a bounce before the report
  • If the SPX closes below the lower bollo on the employment report day (ie. TODAY), there is a study that indicates the high probability of a bottom early in opex week (or at least a solid bounce)
  • The current conditions – not the weakest since 2007 before employment – but close, the third weakest. Also, the 7th weakest Thursday before opex week since 2007.

BOTTOM LINE

I can provide lots of statistical extremes that the market is facing right now. Some of them provide evidence that there will be a significant bounce soon. Others like the comparability of the current technical condition to August 2011 highlight that there is still SIGNIFICANT risk to the market. No doubt there will be a rally soon, but based on Aug 2011, it could be from substantially lower levels.

The opex period should provide relief, which means there are three scenarios to keep in mind for the employment report and the next ten days

  1. Market bounces from employment day or early in opex week, tops, pulls back and bottoms late in opex week (Fri in Jan 2015) or post MLK / post opex (Tuesday after in Jan 2008 & Jan 2009)
  2. Market continues lower in to next week and finds a bottom and has a more lasting rally starting Monday or Tuesday (Nov 2015 and Dec 2014 are good examples)
  3. The market continues to suffer with limited to no bounces and bottoms late in the opex period or post opex and MLK – this is definitely the most extreme scenario, but it is one to be aware of.

On the whole, still very interesting, but also slightly unsettling,

-D

January 2016 EMPLOYMENT DETAIL

 Recent employment reports

Except for the late January report and the November report, 2015 has all been about WHEN does the market bottom around the employment report –

  • Most of the time, it has been EARLY month weakness and bottoms before the report (Feb, Apr, May (late report), August (before and after), September and October
  • After the report bottoms occurred in March (Wed after), June (Tues after) and July (Tues after)
  • In November and December, there were early month tops and the market fell in to the Monday of opex week.
  • There has been no early month top in January 2016
  • One other 2015 important note – the market RALLIED in to every opex week in 2015 – except for January when the SPX topped on the Friday before, which was a late employment report, November when the SPX topped on the Tuesday before employment and fell in to opex Monday and December when the market topped on the Wednesday before employment and fell in to an opex Monday low.

January Employment Reports

No point in covering them in detail. This is the first time we have fallen in to the report since 2009, and really only the 2008 instance is comparable and that was an early employment report (see below).

If there is to be an employment turn, and it was not at the close on Thursday, then the most likely days for a Jan employment turn is the employment day or the Monday after. These are when there have been tops in recent years (like the top in Jan 2015)

 Current Conditions  (as of COB, on Thursday Jan 7th)

With the SPY having a daily RSI of 25 and MFI of 32, -the market is in rare territory. Since 2007, the market has been technically weaker prior to employment only 2 other times

  • Aug 11 (RSI 17) – Market gapped up on the employment day, fell hard and then closed down marginally on the day, but then the next day the Monday, the SPX collapsed and lost 80pts! The bottom was the Tuesday after. Like now, the SPY was below the lower bollo band which can, for a short time, be a very risky situation
  • July 2008 (RSI 21) was a long slow, gradual walk down the lower bollo band. The market had a brief bounce from the Monday after to the Wednesday after, but then continued lower until the SUMMER bottom on Opex Tuesday 12 days after the employment report

Here are some other notable points:

  • August 2014 had an RSI of 27, there was a bottom on employment day and a bounce in to the following Monday, but then the market fell again to the final correction low on the Thursday after employment. Two other extremes of note: Mar 09 (RSI 28) bottomed on the Friday and Mar 08 (RSI 28) bottomed on the Monday after.
  • Since 2007, the market has never been so weak going in to the January employment report. The closest time was Jan 08 (daily RSI 37). The market fell an additional 57 pts to the Wednesday after before having a sharp bounce that recovered most of those losses
  • There was another hour buy signal on the midcaps after the losing one from Wednesday. It is rare to have signals two days in a row. The last time was August 2012 and the market bottomed late on the Thursday before employment and rallied on a good employment report.
  • This is the 7th weakest close on the Thursday before opex week since 2007. All of the 6 other instances saw bounces in to opex week with the EXCEPTION of June 2011 which saw a bottom on opex Thursday about 30pts below the Thursday before opex week close.

Late employment reports

Here is the detail. It is VERY unusual for there not to be a bounce before a late employment report:

There are occasional instances of employment reports occurring on the second Friday of the month – the Friday before opex – they are rare and generally occur thanks to holidays or February’s short month.

There is ONLY ONE instance – Jan 2009 – where we fell through a late employment report and did not bottom until post opex. Otherwise there are really only two outcomes seen in the other 9 reports since 2007, as we rallied in to every report with the exception of the delayed report in Nov 2013.

  1. The market has rallied in to the report and topped on the employment day (Mar 2007, May 2009, July 2011 (pre mkt)) and Jan 2014 or the Monday after (Jan 2010) (especially when hitting the upper bollo band) and pulled back during opex
  2. The market rallied through the report and in to opex and topped between Opex Thursday (March 2013), the Monday post opex (Oct 2010, March 2012 and Nov 2013) or in the latest instance, the Wednesday post opex (May 2015 – the current all time high)
  3. Mar 2007: (minor top on employment day)- The market had fallen hard since post Feb opex, but then bottomed the Monday before employment well below the lower bollo band. After a 40pt rally, it then topped near the open on employment day – and made a final Q1 bottom on opex Wednesday 6pts below the previous week’s low and then rallied strongly to the June peak
  4. Jan 2009 –(Major top on Tuesday before) After a very sharp rally from Dec 29th, the market peaked on Tuesday Jan 6th above the upper bollo bar and then fell HARD through the employment report until finally bottoming on the Tuesday post opex and post MLK holiday.
  5. May 2009: (Major top on employment day) Coming out of the post April opex bottom, the market rallied strongly which culminated in 3 volatile days of price action almost entirely above the upper bollo band (strong up Wed, big down Thurs and strong up on employment day to slight new highs.) Market peaked near the close and then reversed on the Monday and fell sharply till opex Friday where it bottomed – that low was re-tested the week post opex, but it held and then the rally continued in to the June top.
  6. Jan 2010: (Major top on Monday After) After bottoming at the close on New Year’s Eve, the market rallied strongly prior to the employment report and then pressed even higher on employment day closing at the upper bollo band – it then opened at the highs on the Monday and that was the top till March…. But we were in a tight range during opex week and we did not decline until we double topped on the Tuesday post opex / post holiday
  7. Oct 2010 (rally continuation)- This market had had a very strong rally from the August lows and just had two small 25 plus pt pullbacks between the end of August and the October employment report with the final one bottoming after 3 days on the Monday before the report. This month had many similarities to May 2009 and Jan 2010 as the market was pressing against the upper bollo band – this time, we kept going through opex until we minor topped on the Monday post opex and pulled back about 25 points
  8. July 2011: (Major top on Thursday before) Super OB with prices spending at least some time above the upper bollo for 5 days in a row prior to employment report – we topped in the pre market and fell in a volatile opex week until the Monday post opex and then we had a strong bounce before the MEGA selling began in to the MAJOR August low post employment
  9. Mar 2012: (Major Bottom on the Tuesday before) The SPX had peaked on the last day of February and fell 38 pts in 5 days with most of the damage occurring on the Monday and Tuesday pre employment – the SPX bottomed at the close on Tuesday – 4 pts above the upper bollo. The market then rallied. – on employment day, we gapped higher and then continued higher until the Monday after opex where we had a minor top and a pullback for a few days….
  10. March 2013 (Rally Continuation)– the market had a sharp sell off in late Feb culminating in a bottom on the last Tuesday in Feb with a bottom just below the lower bollo band, we then had a strong rally that touched the upper bollo prior to the employment report, but kept going until peaking on the Thursday of opex week – which was the Thursday post employment
  11. Nov 2013 (due to the gov’t shutdown) (Major Bottom on the Thursday Before) – a strange one as we made slight new highs on the Thursday before and then fell all day and 29 pts before bottoming in the pre market and rallying all of opex week until we peaked out on the Monday post and had just a minor 25 pt pullback.
  12. Jan 2014 (minor top on Employment Day) – After peaking on 31-Dec, the market fell 26pts till the Monday before employment and then rallied in to employment day, but it topped then, but just fell 29 pts to the Monday after
  13. Jan 2015: market fell in to early January, but bottomed on Tuesday, Jan 6th and rallied sharply for two days, but then major topped on Employment Day, Jan 9th and fell for 79pts till opex Wednesday.
  14. May 2015 Major Bottom on the Wednesday before and a rally that did not end till post opex – good for 70pts – there was a 33pt two day pullback from the Monday post employment and then the market moved higher

SPX – closing below lower bollo on Friday, the week before opex

NOTE THIS HAS NOT OCCURRED YET. As of Thursday’s close, the SPX lower bollo is 1971. It will be lower post the employment report. Check at the close on Friday to see if this study is valid.

Closing below the lower bollo band on the Friday before opex week is a rare condition. It has only occurred 6 times since Jan 2007

  • Twice it bottomed on Opex Friday and rallied – one was a long lasting rally (Apr 2014) and one was a sharp bounce (Oct 2008)
  • Four times it bottomed during opex week – twice there was a sharp opex Monday to opex Wednesday rally (Nov 2007 and Dec 2015) and twice lasting bottoms were made on opex Tuesday (Dec 2014) and opex Wednesday (Oct 2014)
    1. Dec 2015 – MAJOR BOTTOM on opex Monday Market went lower on the Monday (pre FOMC on the Wed) and bottomed around 11:30am and rocketed higher and closed at the highs on the Wednesday before reversing in to opex day
    2. Dec 2014 – MAJOR BOTTOM on opex Tuesday -Closed sharply lower on Friday before opex week below lower bollo band. Fell another 46 SPX pts and closed at the lows on opex Tuesday, the day before FOMC – then moved sharply higher until post Christmas
    3. Oct 2014 – MAJOR BOTTOM on Opex Wednesday -was following lower bollo band lower for most of early October. Closed below the lower bollo and at the 200 day MA on Friday before opex. Bottomed 92 pts below the initial lower bollo breach to a final bottom on opex Wednesday.
    4. April 2014 – MAJOR BOTTOM on Friday before short opex week – Market had fallen sharply for a week and closed at the lows 12 pts below the lower bollo. This was the low for the move and the rest of the year. RUT and MID did not bottom until early in opex week (nb. It was a short opex week as markets were closed for Good Friday on opex day)
    5. October 2008 MAJOR BOTTOM on the Friday before opex week and MAJOR TOP on opex Tuesday – breached lower bollo band many times in Sept 08. Market cascaded lower starting on Thursday, October 2nd and did not stop falling until Friday, October 10th – 275pts below the initial bollo breach. Market then bounced 204 pts from the Friday before opex to opex Tuesday and then fell again.
  • Nov 2007 – Sharp opex Monday to opex Wednesday rally back to 200 day MA and then a Major top and fall till the end of November. Market first closed below lower bollo and 200 day MA on Wednesday post employment. SPX closed below lower bollo on Friday before opex and bottomed near the close on opex Monday.

 

 

January 2016 Turning Point Preview (After the open on Thursday, January 7th, 2016 ):

The following is my monthly turning point preview that touches on important and interesting historical information about the upcoming month.

Per yesterday’s note, apologies for the delay in posting this preview, I have included the two points that I made yesterday.

January 2016 has certainly started in a most dramatic and unusual way. There is no January since 1998 to compare it to.   The market has clearly changed in character. There have been three recent months of January that were particularly negative and may help provide some guidance.

  • January 2008 – the SPX topped on Dec 26th and fell through employment until Wednesday, Jan 9th. (6th trading day) It then experienced two up days that ended on Thursday, Jan 10th and then then the ‘Kerviel’ slide in to the MAJOR Bottom on the Tuesday post opex / post MLK
  • January 2009 – Market rallied in to the new year and topped on the 3rd business day and then fell relentlessly through the late employment report and down in to a final bottom at the close on the Tuesday post opex / post MLK.
  • January 2015 –Market topped on Dec 29th (just like this year) and fell very sharply for three days until Tuesday, Jan 6th (3rd business day) and then rallied in to the employment report. Market then topped and fell to fresh lows during a volatile opex week. Market finally bottomed on opex Friday (pre MLK) and raced in to the ECB meeting where it topped again and fell to the Q1 low on Monday, February 2nd

 Third Trading Day of January

The third trading day of January is frequently a PIVOTAL day for at least a minor turn in the markets – sometimes something more substantial. In some instances, there has been a strong move and then a slightly higher high or low on the 4th day, but the bulk of the move ended on the third day. In some instances, it just meant a minor two day pause in the direction of the price action (eg 2015 and 2013). In other instances, it was a more substantial turn.

The third day has been a pivotal day 11 times in the last 18 years (since 1998).

Recent examples:

  • 2015: Sharp 3 day drop to start the year, ended on Jan 6th – the 3rd business day and there was a sharp two day bounce in to the employment report
  • 2014 – Closed near the lows on the 6th – the 3rd business day and then rallied till employment day
  • 2013 – 3rd day (Jan 4th) was a minor top and the start of a two day pullback (BIG Gap Up to start the year)

 Clearly, the third day has not worked in 2016. The latest day for a proper turn when going down is the 6th trading day. (2008)

 Late Employment Report

There are occasional instances of employment reports occurring on the second Friday of the month – the Friday before opex – they are rare and generally occur thanks to holidays or February’s short month.

There is ONLY ONE instance – Jan 2009 – where we fell through a late employment report and did not bottom until post opex. Otherwise there are really only two outcomes seen in the other 9 reports since 2007, as the market rallied in to every report with the exception of the delayed report in Nov 2013.

  1. The market has rallied in to the report and topped on the employment day (Mar 2007, May 2009, July 2011 (pre mkt)) and Jan 2014 or the Monday after (Jan 2010) (especially when hitting the upper bollo band) and pulled back during opex 2. The market rallied through the report and in to opex and topped between Opex Thursday (March 2013), the Monday post opex (Oct 2010, March 2012 and Nov 2013) or in the latest instance, the Wednesday post opex (May 2015 – the current all time high)
  • Additional notes on Jan 2009 – while the market did fall through the employment report all the way through to the Tuesday post opex, there was an initial rally at the start of the year that ended on the third trading day, Jan 6th.
  • In 1998, the market peaked on the 2nd trading day (Jan 5th) and fell for a week through a late employment report and then bottomed for the month on Monday, Jan 12th and a sharp rally was on

 Opex and MLK holiday (post opex)

Opex was very good for turns in 2015 with the exception of the somewhat expected rally continuation in October. The one interesting thing to note is that there were two rare Opex Monday bottoms in November and December. (December was somewhat expected due to the FOMC on the Wednesday)

January opex, particularly with the MLK holiday post opex has been an extremely good time for market turns. The only year there was not an opex / MLK turn when MLK was post opex was in January 2013 when a strong rally continuation was underway.

  • MAJOR BOTTOMS – 2008 (Tues post opex / post holiday), 2009 (Tues post opex / post holiday), 2015 (Opex Friday / Day before MLK)
  • MAJOR TOPS – 2010 (Tues post opex / post holiday) and 2014 (Tues post opex / post holiday)

 Central Banks (FOMC 26th & 27th (no press conference) and ECB Thursday, the 21st)

This is the first time I have highlighted Central Banks in a preview.

  • In 2015, the ECB moved to a different schedule (every 6 weeks) and the market showed a distinct tendency to rally in to the ECB meeting and then pull back. There were two exceptions – In October, there was a rally, but no pullback and in December, the market topped the day before the ECB and started its slide.
  • Overall, the FOMC continues to have important turning point characteristics, particularly when there is a press conference.   When there is NO press conference, then the turns have been less straightforward, particularly for the January FOMC in the last few years. There has been some movement around the FOMC meeting, but in 2014 and 2015, the markets continued lower in to early February bottoms, while there were minimal tops around the FOMC in January 2011, 2012 & 2013.

In my employment preview at the end of the day, I will be providing a special study on the SPX closing below the lower bollo (currently 1978) on the Friday before opex week. The study was last triggered in BOTH November and December 2015 (Opex Monday bottoms). In all instances, there was a strong bottom and rally during opex week.

Bottom Line

The market has changed character, but history does provide a few scenarios that might provide some guidance. There should be a bottom and at least a bounce soon, but one must remember the extreme scenario that would entail a continued decline until opex day (2015) or shortly after opex and the MLK holiday (2008 & 2009). This latter scenario is not likely, but it has occurred. Here are the key points to remember:

  • All January declines (since 1998) that started in December have had at least had a strong multi day bounce with the latest (and shortest) one being the two day bounce that occurred in 2008 that started on the 6th business day (Jan 9th)
  • Late employment reports almost always see a rally in to the report. The most recent late employment report was May 2015 and we bottomed on the Wednesday before and rallied in to the report and then through opex. (see above for the one exception)
  • January opex and the MLK holiday is a powerful turning point combination, particularly for bottoms (2008, 2009 and 2015), but also tops (2010 and 2014)
  • When the market has seen extreme selling pre opex and in to opex week, sharp reversals have occurred recently in November and December 2015.

If the market does not bounce in the next two days, then the start of opex week should provide significant opportunities.

Definitely an interesting start to the year!

-D

Note: I will provide further details in the three previews that I will post later in the month

 
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