PUG Stock Market Analysis, LLC

Elliott Wave Technical Analysis and Commentary on the Stock Market

Denali’s Turning Points 2017

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.

May 2017 Turning Points – The month of May and post FOMC and pre Employment

(as of mid morning on Thursday, May 4th, 2017)

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.   I have been waiting patiently for the market to reveal some interesting edge, but it is just not helping out right now. (sorry about that) So here is FINALLY the May preview!

May Perspective

The character of the month of May has changed over the years – really since 2006 – though 2007 (straight up all month) was a bit of an outlier. There really have been two distinct types of May since 2007:

  • 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 to 2013
  • Lately there has just been a short term extreme established: in 2014 – minor high on 2nd trading day, 2015 – low for the month on the 4th trading day & 2016 – low on the 5th trading day)
  • ALSO, late in opex / post opex has been extremely important for turns. (See research below)

From a swing trader’s perspective, SELL in MAY has no historical justification or relevance, BUT

  • 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.
  • 2016 was a great example of this trend. GREAT Opex Thursday buying opportunity and then a top on Wednesday, June 9th that eventually produced a 130pt sell off (thanks to Brexit) and a late June bottom.

FOMC and Employment in Same Week

The early May price action is key given the tendency to turn in early May or have the extreme for the month

  • There has NOT BEEN A MAJOR TURN on every combination of FOMC and employment, but there certainly have been a lot.
  • The FOMC meeting before the employment report combination has occurred 13 times since 2007. This is the third time in the last 6 months and before that there were no instances until back in the summer of 2014.
  • Declines in to and possibly through the FOMC meeting have set up some very good buying opportunities lately. In fact, the last four instances have all been buying opportunities – 2 on employment day (Aug 14 and Nov 16) and two before the FOMC (May 14 – Monday and Jan 17 – Tuesday)

GIVEN Wednesday’s muted price action – there is NO NEW Information that can be gleaned from the Fed day price action

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 in to the following week that was in 2012 when the market topped on the 1st trading day of the month and trended lower all month until the opex day bottom.
  • In May 2016, after topping on the first trading day of May, the market gapped down and bottomed on employment day and then rallied for 47pts in 5 days before heading lower in to the May opex bottom

The price action post Fed day is probably the key for what might happen with the employment turn.

  • If the market heads LOWED post FOMC, then a bottom on the day before employment or employment day is likely given that the market has only once fallen through the employment report during the month of MAY
  • If the market heads higher then a rally in next week is likely, then the market tends to have a period of weakness before opex week – (see below in the May opex comment)

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 Thursday or the Monday to Wednesday after always seem to be the turning points   (The lows in BOTH 2014 and 2016 were on Opex Thursday)
  • Except for 2004, 2011 and 2014 and 2016 – 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.

  • In 2016, the market started pulling back from Wednesday, May 11th until bottoming on Opex, Thursday, the 18th
  • In 2015, the market bottomed on the Wednesday before opex (and employment) and rallied strongly in to opex week. It experienced a pullback on the Monday and Tuesday and then ramped higher in to the post opex top

Memorial Day Holiday

The Memorial Day holiday used to be very good for countertrend trading turns. The holiday turn was never THE top or THE bottom of a move, but the turn generally represented a good trading 2 to 7 day trading opportunity. Alas, that has not been the case lately

  • 2016 There was a minor one day pullback post the holiday after the super strong rally out of the May opex bottom
  • 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 (this was after the post opex MAJOR TOP
  • There was no turn in 2014, but otherwise there has been a turn after the holiday in every year between 2008 and 2015.For now, the Memorial Day edge seems to be hibernating

Other Observations:

  • The Long period without a MID 10 minute buy signal study was triggered again last week after 15 days without a buy signal. I posted this study in April 2016. The study indicates that there is a higher than average probability (12 of 18 instances) of the market having a MAJOR top (and a 50pt plus SPX pullback) shortly before or after this study is triggered. It was accurate in April 2016 and again in June 2016, but it just indicated brief weakness in late November 2016 and mid July 2016
  • MDY Daily MFI OB – MDY ended a daily MFI OB period last Friday – April 28th – From the Daily OB exit day to the next low is on average 8 days, but there is a wide variability as to what happens. The last OB period was in late November 16 and the weakness was brief.
  • MDY Weekly MFI OB – MDY has been Weekly OB since the last week in March. This is starting to be an extended period. There have been 30 weekly OB periods since 1998. On average, they last 2 to 5 weeks. While the last two weekly OB signals did signal MAJOR tops and significant pullbacks, this indicator only is helpful in identifying major tops around 40% of the time
  • MDY and IWM Monthly MFI OB – The last time this occurred was in spring 2014 and Spring 2004 for both of them and also April 2010 for MDY – Interestingly, these rare instances did indicate a stall and a few months of consolidation / pullback with a pullback to the 20 month MA occurring in 2014 and near the 20 month MA in 2004. Again, not a sell signal – just something for awareness.
  • SPX Inside Month – SPX had its first inside month since September 2015 in April. There have been 8 other inside months since March 2009, but I could find nothing that was particularly helpful with this somewhat interesting technical fact.

 Current Conditions   (pre employment from 10:30am on Thursday, May 4th)

There are lots of extended indicators, but NONE that are helpful in predicting a top or the market’s next direction

  • SPY Monthly RSI is 78
  • SPY Weekly RSI is 68
  • SPY Daily RSI is 65
  • SPY is not MFI OB on any timeframe

The daily RSI of 65 is fairly high – but not particularly helpful In December, the daily RSI was 66 and the market bottomed on the day before employment and rallied. In June 2016 (69 RSI), the market continued to rally for 5 more days before topping out on the Wednesday post employment.

NOTE: The inside week for opex week did break up. That study indicated that the play was always to FADE the range break post opex. That study has actually been reasonably accurate for the MID and the RUT, but the SPX has not validated it and the study is based on the SPX.

Bottom Line:

Just as I wrote last year – the month of May is generally a very good one for traders, as there is usually 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. Right now, the MID & RUT seem to be showing the best 2 way price action since late March.

  • 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.
  • The MID and RUT, especially the RUT, tend to be weak until the middle of the month on a relative basis (who knows why…)
  • Right now, for the employment report, just like the FOMC announcement, there is absolutely NO EDGE with the SPX stuck in this VERY narrow range between 2380 and 2398.

The key thing to remember about the month of May is that the best and strongest trend opportunities for the month of May tend to emerge some time after the Thursday of opex week, so it is best to not get too wedded to one side of the market or the other.

Have a good month!

-D

DETAIL NOTES

Opex or Post opex is a really important time for the SPX to begin a move in to early June. It does not always happen, but it is a fairly strong edge. As examples:

  • 2016 Bottomed on Opex Thurs, May 19th and rallied to June 8th
  • 2015 Topped (for the year!) on Wed, May 20th (post opex) and initially fell to June 9th
  • 2014 Bottomed on Opex Thurs, May 15th and initially rallied to June 9th
  • 2013: Topped on Wed, May 22nd (post opex) and fell initially to June 6thOverall since 1998, there have been
  • 8 rallies – 6 which started late in opex or post opex
  • 5 falls – 4 of which start on Opex day or opex opex
  • 3 rallies from Opex / post opex that ended post Memorial Day
  • 1 Fall from post opex to post Memorial Day
  • 2 where there was no real distinct trend change

BEGINNING of May

NOTE (from May 3rd): This has already been published and it is just a follow up. The rally from Friday, April 28th in to Monday, May 1st did occur, but at approximately 12pts, it was pretty minimal and there is NOTHING right now that can be gleaned from such minimal price action.

 I have referenced the rally from late April in to early May a few times this month. It is possible that today’s weakness is mirroring the end of February, when the market was weak on the last day of the month and soared on March 1st (though I do not believe Trump is speaking), but right now it seems less likely.   Here are a few thoughts on it and the supporting data,

Given that April 2016 & 2017 were slightly different months with NO opex buying opportunity (both bottomed for the month on the Thursday before opex week started), May 2017 may prove to have a different than normal character (or it could be similar to May 2016), but 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 16 of the last 19 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.
    • In 2016, the rally was from Friday, April 29th to just Monday, May 2nd – but it was 32pts – it should be noted that the rally was just an approximate 50% retrace from the Wed post opex top to the lows on Friday, April 29th
  2. Given the late April in to May rally, it is important to also know that in the last 19 years, there has been a short term inflection point in the first four trading days of the month 17 times (89%)
    • 9 times on the 1st day (47%)
    • 6 times on the 2nd day (32%)
    • 2 times on the 4th day (11%) – 2010 had the FLASH CRASH
    • 12 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 trading day. The only exception was an EXTREME ONE, the Flash Crash in May 2010 on the 4th day. (but note the cautionary comment below)

THERE are some challenges for next week too – with the FOMC on Wednesday and the employment report on Friday.

and some CAUTION SIGNS for the early MAY Rally

This last week of April with the HUGE Monday gap up and the run higher till Wednesday with two days spent entirely above the upper bollo for the SPX is unusual. It actually does not bode that well for May (see below) Given the very small pullback from the upper bollo, there is not much insight in to whether the rally in to early May will occur. Other than 2003, the other years all showed:

  • Weakness to the lower daily bollo (2016)
  • Small gains until the employment report or the day before and then down (2006 & 2009) in to at least opex week
  • An early peak and down till post opex (2011 & 2012)
  • A short pullback of a few days and 25 to 50SPX pts before resuming rally (2003 & 2008) – but this was after the MAJOR March bottom and the end of the bear market

Bottom Line:

The strength of the late April / post opex rally is unusual- having only occurred 6 times in the last 19 years. It may mean a muted start to May (2006 & 2009) and then a decline or more substantial decline (2011, 2012 & 2016).

  • While the early May rally may still materialize next week, there has not been that much weakness yet to make it highly probable.
  • On the flipside, if there is weakness in to the first few days of next week, it is possible that a buying opportunity will materialize before either Wednesday’s FOMC meeting or Friday’s employment report.

DETAILS

What happened when the SPX traded above the upper bollo during the last week of April?

  • 2011 – Bottomed on the Monday post opex and ran strongly higher with an upper bollo run for the last 4 days of April. Topped at open on Monday, May 1st on Osama Bin Laden news and fell all month until post May opex
  • 2009 – Bottomed on the Tuesday post opex and briefly pulled back from above the upper bollo on Thursday, April 30th, but resumed rallying on Friday, May 1st after making a slightly lower low – rally continued until Thursday, May 7th with multiple days above the upper bollo band – Market then fell till Opex Day, Friday, May 15th

What happened when the SPX traded above the upper bollo post Opex Week?

  • 2016 – Bounce on 1st trading day of May and then down till employment day to just below the April opex week low and 6pts below the lower bollo band
  • 2006 –After strong rally from April opex Monday bottom, market traded above upper bollo band post opex and then declined to the 40 day MA (note 20 and 40 day MAs were only 4pts apart) and then reversed higher to make a slightly higher high above the upper bollo on Friday, May 5th – this was the top for May and the market declined till post May opex
  • 2003 – From very strong rally from the March lows, the market peaked on the Wednesday post opex and declined approximately 2.5% in 2 days and then proceeded to rally steadily just under the upper bollo until topping on Opex Friday in May and falling sharply for a few days

What happened when the SPX traded above the upper bollo in the first week of May?

  • 2012 – Rallied from Monday post opex bottom to Tuesday, May 1st topped and decline until post May opex, bounced and then fell in to early June low
  • 2009 – Bottomed on the Tuesday post opex and briefly pulled back from above the upper bollo on Thursday, April 30th, but resumed rallying on Friday, May 1st after making a slightly lower low – rally continued until Thursday, May 7th with multiple days above the upper bollo band – Market then fell till Opex Day, Friday, May 15th
  • 2008 – Briefly traded above upper bollo band on Friday, May 2nd then declined to 20 day MA on opex Monday before rallying again until MAJOR TOPPING on the Monday post May opex.
  • 2006 –After strong rally from April opex Monday bottom, market traded above upper bollo band post opex and then declined to the 40 day MA (note 20 and 40 day MAs were only 4pts apart) and then reversed higher to make a slightly higher high above the upper bollo on Friday, May 5th – this was the top for May and the market declined till post May opex

 

Post April Opex Comments (as of late morning on Wednesday 26-Apr-17 – post opex):

As I can not remember an opex period that has EVER triggered so many of my opex studies, I thought it would be helpful for me and interesting (possibly for you) to just review all of the historical studies to see if they may provide any helpful indications and answer the question:

Will this be an Opex Rally continuation or a minor or MAJOR post opex top?

For definition purposes, the opex period runs from Opex Monday to the Wednesday post opex (or in the case of November, post the holiday as well).

  • Opex turns are identified as clear bottoms or tops with a minimum multi day move of 25 SPX pts.
  • The SPX / SPY is the only index that is used

For now, unless the market moves to the downside fairly soon, a rally continuation does appear likely – which would be somewhat surprising given the studies I will cover below – but not totally surprising as the persistence of the market has once again made “rally continuations” much more frequent. (recent rally continuations: Feb 17, Nov 16, July 16, Oct 15 – most rally continuations are due to the market getting quite oversold the previous month or earlier that month – but Feb 17 was a clear continuation due simply to the range breakout)

I will admit I would not have predicted a rally continuation for the market based on the fact that the market simply did not get that oversold for the pre holiday bottom on Thursday, April 13th.

Rally continuations, if they occur tend to see the market trend higher in to early the next month if not longer.

(nb: Falls in to opex never seem to continue – as there always seems to be at least one sharp oversold rally during every opex period – though June 2008 was almost a fall continuation)

Here is a list of the studies that have been triggered by this opex period and what they should have meant.

RALLY from below lower bollo to above upper bollo during opex period

  • Has only occurred once before since 2007. It was in Dec 2013 when there was a spike below a flat lower bollo on opex Wednesday (Fed day) and then a strong rally that went on till the end of the year
  • Inconclusive

SPX Trading below lower bollo on last trading day before opex week starts

  • This study has actually been seen quite a few times in recent years (Sep 16, Jan 16 & Dec 15) and each time, the market fell in to opex week and then produced good rallies – though only 2 out of the 8 instances saw rallies that were super long lasting.
  • The only time the SPX did not make a lower low during opex week was April 2014. The market did have a minor top on the Tuesda post opex that retraced 50% of the rally
  • Conclusion: April 2014 is the only analog – really unusual that the market did not make a lower low, but that is why historical studies are just that historical studies that provide perspective on what could happen – not what WILL happen.

HOURLY MID Buy signal on the last day of the week before opex week

  • The only time prior to April 2017 that the hourly buy signal before opex worked was October 2012. The market MAJOR topped on Opex Thursday and declined for another month
  • Conclusion:   There is now a second exception and this one produced an EXTREMELY strong rally

Inside week for Opex Week –

  • When the SPX trades completely within the previous week’s range during opex week the 7 previous instances.
  • The most recent instance was October 16 that saw a Monday post opex Gap Up that failed and the market reverse in to November employment
  • April 2012 ( a Monday post opex buy) and April 2014 (a minor Tuesday post opex / post holiday top) were the two previous April instances
  • The range breaks were between 1.5pts (Jan 17) and 20pts (Feb 2008)
  • This current range break is 26pts as measured from the April 10th high of 2366
  • Conclusion – this study is not time based, so the market can still reverse for a pullback of some sort back in to the range. The pullback in April 2014 was 50% of the rally

Trend days up for the MID on Opex Thursday

  • There have been 14 in the last 8 years. 9 made post opex tops – though the one in Sept 16 did not occur until the Thursday post opex (it was a MAJOR Bottom on Opex Monday)
  • The only relevant one that did not make a post opex top was in August 2014 that had a very strong sell off on opex Friday to below Thursday’s low that then rebounded and the market went higher. Interestingly, the market had started rallying from the Thursday before opex week – just like this market

Many Hourly Sell signals in the MID during the opex period

  • There have so far been 4 hourly sell signals in the MID for this opex period. This is a large number. I believe there have only been two other instances with so many signals – May 2013 (Major Wednesday post opex top based on Bernanke speech) and Dec 2014 (mentioned before with an opex Wednesday spike down and sharp rally)

SPX above the upper bollo for some portion of the opex period

  • I have not mentioned this study before as it just triggered on Monday.
  • Given the bull market, there have been a large number of instances. – 39 since 2007
  • 17 times the SPX produced minor tops and pullbacks – more recently this has been what has primarily occurred with the SPX (recent instances Jan 2017, Dec 2016, August 2016)
  • 17 times the SPX had more long lasting MAJOR tops (last instances:   April 2016 and June 2015)
  • 5 times the market kept moving higher (recent instances: Feb 2017 and July 2016)

OPEX Monday Gap up and Gap not closed

  • 18 times since 1998 the market has not traded at or below the previous week’s closing SPY price.
  • This has happened a lot more in recent years (Feb 17 & July 16 – rally continuations, Feb 16, July 15 and Mar 15 – Monday post opex tops and 50 plus pt brief pullbacks)
  • Out of the 18 instances, there have been 12 tops (6 Major and 6 minor), 6 rally continuations

Overall, the market has been impressive since April 13th (particularly the MID and RUT) I will admit to disappointment that it did not provide the strong opex buy set up that I was expecting given the April 13th studies that were triggered.

April opex has only produced one previous rally continuation that was in April 2007 (after major OS bottom in March opex) and the rally continued for some time after April opex.   The bias for April is definitely from the long side and the April opex period has frequently produced good buying opportunities – though not this year.

The historical studies suggesting a post opex top are just that historical studies. The market has been range bound for some time and if the range breakout is real, then like in Feb 2017, Nov 2016 or July 2016, the market could stay persistent and run for some time. Though there are a few things to also remember:

  • ECB is on Thursday and has been an occasional catalyst for turns
  • There is a strong tendency for the market to rally in to early May (at least from the end of April in to early May), but it can just be a short rally.
  • The market did make significant tops on the first trading day of May in 2011 and 2012

BOTTOM LINE:

The turning points and historical studies have frequently been effective guides to the market price action, but they do not always work and when this bull market gets persistent as it has during a number of periods since 2009, particularly in the last year (end of May to June 2016, July – Aug 2016, Nov – Dec 2016 and Feb to March 1st, 2017), they definitely do not work for a number of weeks or even a month or more.

I have no idea whether this rally will end shortly or continue in to May. There are lots of signs that historically would suggest it should stop and have at least an approximately 50% pullback towards the SPX 2329 April 13th low, but that definitely does not need to occur.

Ultimately, as always risk management of one’s positions is the most important thing.

Somewhat surprising, but as always ever interesting,

-D

 

GOOD Friday Holiday preview and pre opex observations April 2017 (as of 11am on Wednesday, April 12th, 2017):

The markets are closed this Friday for the Good Friday holiday (but government offices are open, so the retails sales and CPI reports will be released on Friday) There are a number of things to remember about Good Friday:

  • The date moves around a lot, so there is no consistent alignment with the turning points
  • Europe is closed on both Good Friday and the Monday after – this has meant that the Tuesday post holiday is quite often a key day (in 2012 and 2014 the turn was on the Tuesday after)
  • Good Friday has not occurred on the Friday before opex week since 2009.
  • Overall, Good Friday is not the best holiday for turns, but in recent years it is showing much better turn tendencies

Good Friday Holiday recently

The Good Friday holiday has been a good turning point in recent years – mostly minor turns – though the last two years has seen more significant bottoms before the holiday. There were no turns for Good Friday in 2011, 2007 and 2003 – all of those years the market continued to rally through the holiday for a period of time.

Turns really have occurred either side of the holiday. There is no consistency to determining when the turn might occur.

  • 2016 (post March opex) – MAJOR Bottom on the Thursday before and a sharp 8 day 54pt rally
  • 2015 – (employment day in April) MAJOR Bottom on the Wednesday before (but some crazy holiday dynamics as the employment report was released on the holiday) The Wednesday low was the low for April.
  • 2014 – (Opex Day) – Minor top on the Tuesday post opex and a 6 day 34 pt rally to the Monday before the April FOMC.
  • 2013 – (Quarter End Friday) – Minor topped on Tuesday post the holiday and fell 34pts until bottoming at the open on the employment report
  • 2012 (Employment report) Market topped for the month on Monday, April 2nd and the market fell through Good Friday and the employment report and bottomed on the Tuesday post employment. The bounce lasted (initially) just 2 days and 31pts. A slightly higher high was then made on opex Tuesday and then there was a more lasting low on the Monday post opex.
  • 2011 (No turning points) NO TURN – Market had bottomed on the Monday post opex and ran higher until topping for the year on the first trading day of May

GOOD Friday Holiday before opex week

It does not occur that often – the last time was in 2009. There have been turns around the holiday in each instance – BUT, there is NO discernible pattern

  • 10-Apr-2009: Minor topped on opex Monday (post holiday) near the close at the upper bollo band and pulled back 30pts to opex Wednesday’s open
  • 14-Apr-2006: Had been pulling back since April 7th (employment day) and bottomed on Opex Monday (post holiday) just below the lower bollo band. This was the low for April
  • 9-Apr-2004: Topped at the open on the Thursday before the holiday. This was the high for the month. Monday before the holiday was an inside day and at Tuesday’s open the high was re-tested, but failed. Total pullback was 30pts
  • 13-Apr-2001: Market had made an oversold bottom on Wed, April 3rd and rallied sharply till opex Wednesday (post holiday) and topped and pulled back 50pts. (The initial rally from April 3rd was 167pts)
  • 10-Apr-1998: Market had a sharp pullback from Monday, April 6th (post employment) above the upper bollo to the 20 day MA on Wed, April 8th pre holiday. The Thursday before holiday was an inside day. On the Monday post holiday, the low was tested and held and the market rallied till post opex week.

Markets the week before opex week

The market consistently likes to rally in to opex week. It is amazing how often it occurs:

  • Last time market fell in to opex week was September 2016 (from Wednesday before to opex Monday)
  • Overall in 2016, the market rallied in to opex week 8 times and fell in to it 4 times (Sep 16, Jun 16 –Wednesday before, May 16 – Tuesday before, Jan 16 – Wednesday week before)

April opex week is not as consistent with the rallies in to opex week – BUT, if the market falls in to opex week then a MAJOR opex week bottom is reasonably certain.

  • 2016 – Up in to opex week and MAJOR top on Wednesday post opex
  • 2015 – Up in to opex week. Topped for the week on Opex Wednesday and fell in to a MAJOR bottom on Opex Friday
  • 2014 – Up in to opex week from the Friday before. Minor topped on the Tuesday post opex
  • 2013 – Down in to opex week from the Thursday before opex and MAJOR Bottomed on Opex Thursday
  • 2012 – Down in to opex week from the Thursday before. MAJOR Bottomed on the Monday post Opex
  • 2011 – Down in to opex week from the Wednesday before. MAJOR Bottomed on the Monday post Opex
  • 2010 – Up in to opex week from weeks before. Topped on opex Thursday and bottomed on the Monday post opex
  • 2009 Up in to opex week from the Wednesday week before. Topped on Opex Friday and MAJOR Bottomed on the Tuesday post opex (below the opex week low)
  • 2008 – Down in to opex week from the Monday before and MAJOR Bottomed on Opex Tuesday

Overall, April opex is one of the better opex weeks for producing a good buying opportunity

Follow up on April Observations

This month of April is following the general tendencies for April, but like in March, there have been some strange and somewhat unexpected twists like the strong RUT outperformance this past Tuesday. The turns are occurring, but not quite when history might predict.

  • April employment has produced two potential turns – both a high on the Wednesday before (2378) and a low on the Tuesday after (2337) – from here there is no edge. The primary turn could either be a bottom or a top from here (sorry about that)
  • The fall from last Wednesday to yesterday, Tuesday, was 6 days. That counts for the April tendency as unwinding the late March strength for a period of 5 to 14 days. The market can still go lower – but that April tendency has been satisfied
  • REMEMBER – April tends to have quite a few turns, so there can definitely be more ahead
  • April opex is generally a volatile week with lots of double turns! In the 8 years from 2009, there have been 6 double turns. (tops and bottoms during the opex period)

Current Conditions                       (as of 11am on Wednesday, April 12th, 2017)

The market continues to be in a real range. The technical conditions are neutral.   The swings and volatility are definitely picking up within the range.

Both hourly signals and 10 minute signals have been working – though patience has been needed for the 10 minute signals. (as an example – 10 periods were needed for the bottom on the 6th, 8 periods were needed for the bottom on the 11th and 6 periods were needed for the top on April 5th)

Bottom Line:

Opportunities on both the long and short side keep appearing.

  • The turns do keep occurring
  • Good Friday has decent turn potential – especially if the market keeps moving in one direction till the Tuesday post holiday.
  • April opex week is very good for double turns
  • A fall to new lows during April opex week would set up well for an opex inspired rallyThe challenge right now is the market is in a range. I think most everyone is hoping (or expecting) that the range will break soon, either higher or lower. The issue is that the market never likes to do what everyone is hoping for.I am neutral and planning on continuing to play the market when it gets too OB or too OS – that seems to be the only thing that works.

ENJOY the long weekend! – we are off for 4 days here and the kids are now on holiday till May 2nd (yikes!)

-D

 

April 2017 Turning Point Preview (as of close of business on Tuesday, April 4th ):

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month. Most of the data is from recent history through to 1998.

 In my view the market has now normalized (even if the range is still narrow and volatility is low). In fact, it normalized back about March 9th when it made its somewhat expected low for the rally in to March opex week. The month of March really had three things that were fairly normal for March, but also three things that were not that normal:

The rally in to opex with a low prior to a late employment report was expected. As always, it is the timing and levels that are the challenge.

  • The March 1st top – which still has not been exceeded – was not normal. There have been some early March tops, but nothing quite like that one in the SPX on March 1st. The one recent early March top that I am reminded of is the one in the RUT in 2014. That high was also tested in opex and then the RUT ended up declining till mid May.
  • Overall, one must go back to 2005 to see an early March top like the one the market just had. (Market declined until April opex)

The rally and the top post FOMC was what history would have predicted

  • BUT it is rare for the SPX to top on opex Wednesday during the Quad opex week. The top did occur post FOMC as expected… but opex Wednesday was early.

A rally during the end of March was also fairly standard

  • But it did not start on the Thursday post opex as had happened the last few years, but instead on Monday, the 27th and only last till March 30th instead of in to April.

Overall, the price action with the one March exception of the March 1st high can be considered fairly in line with history. What is unusual for April so far is the failure to rally in to April. The normal price action with a late March pullback and rally is for the market to at least continue with the rally in to early April. Today is only the second trading day of April, but it is still unusual for the market to not trade above the late March high. Normally the rallies from the March pullback end somewhere between the 1st (last seen in 2016) and the 7th (2008) or just for strength to just continue (2010 and 2007)

APRIL Perspective

Last year, I wrote – “Overall, April is a month that at the very least ends strong….” Alas, in 2016, the market topped on the Wednesday post opex and fell till May opex week.

What are some of the other April characteristics?

  • April tends to have quite a few turns – almost every week – with just 2007 being a super strong upward trending month. (Even in 2010 there were regular turns – they just did not start until the 15th of the month) April 2016 saw quite a few good turns with just the one trending move from April 7th to April 20th
  • April employment always produces turns (11 tops and 6 bottoms since 1998)
  • April opex is very good for turns and with the exception of 2014 and 2016, it has produced solid buying opportunities (14 buys since 1998)
  • There is almost always strength from the end of April in to early May – though it can be brief (16 out of 19 years)

Employment

The general tendency for April employment is to reverse the late March to early April price action either side of the employment report for somewhere between 5 and 14 days, with the caveat that there have been two recent Aprils (2007 & 2010) where the market just was STRONG most of the month.

  • In 2016, the rally after the post opex decline ended on employment day April 1st and the post employment pullback lasted to April 7th
  • In 2015, the market actually fell in to an April 1st pre employment low and then rallied till opex Wednesday
  • In 2014, the end of March rally ended on employment day, April 4th and the market fell 84pts in 7 days
  • In 2013, the market declined from Tuesday, April 2nd in to employment day (Good Friday) April 5th and then rallied for 6 days.
  • In 2012, the SPX made a significant top on the first day of April and declined through the employment report until the Tuesday after and then bounced for 6 days before falling in to a Monday post opex low.
  • In 2011, the market rallied until the Wed post employment (April 6th) and then declined until the Monday post opex.
  • In 2010 and 2007, the market rallies just continued
  • In 2009, the minor top on the Thursday before employment lasted for 5 days and 31pts.
  • In 2008, the market topped on the Monday post employment and fell 62pts over 8 days until an opex Monday bottom.

As the market is trapped between the 2322 low of March 27th and the 2370 high of March 30th, it is still too early to tell whether an April employment top or bottom is more likely

GOOD FRIDAY and a Holiday before opex week

Good Friday has a reasonably decent track record for turns. The last time there was no Good Friday turn was in 2011. The challenge with Good Friday is that the date moves around a lot and thus Good Friday does not provide a consistent pattern. Still, here are a few key points:

  • There is no set consistency as to when the turns occur. The last 2 years have been pre holiday. The previous 3 had all been on the Tuesday post the holiday (when Europe re-opens)
  • Good Fridays before opex week are rare. There have been 5 since 1998, but none since 2009.
  • Most of the time, holidays before opex week are minor turns or no turn at all as the opex momentum is too great. Having said that, the bottom in February 2016 was two days before the beginning of opex week President’s Day holiday

 April Opex

Last year, I highlighted that the April opex period had the most pronounced tendency of ALL 12 opex periods to produce a buying opportunity. Of course, last year the market rallied strongly from April 7th to April 20th and then major topped on the Wednesday post opex! (and then declined for 4 weeks)

Still, the April opex tendency is still the April opex tendency as one year does not change 19 years of history. The buying opportunity 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.

  • 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)

The important thing to remember about April opex is that there is almost always a turn with only April of 2007 being the one year that saw an April opex rally continuation.

ECB (Apr 27th )   (FOMC is in May)

  • The jury is still out for me on whether the ECB is a legitimate turning point catalyst. As the early March pullback did end on ECB day, March 9th, and then the market rallied sharply, I will mention it here, particularly given the next point about the end of April rally, as the ECB day may be the catalyst for another rally

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 may just start on April 30th like in 2015 (from April 30th to Monday, May 4th) and 2016 (Friday, April 30th to Monday, May 2nd), 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 with a down open)

 Current Conditions

The current conditions are neutral. The SPX is in a reasonably narrow range and the RUT is trapped in a super trading range that really has lasted for almost 4 months.

Q2 TOPS

Since the bull market began, the market has had a pronounced multi week period of weakness that has started as late as May 23rd, 2013 and as early as Monday, April 2nd 2012, with one exception – which was 2014 – when the first true multi week period of weakness did not emerge until September. In 2016, there were two periods of weakness – a month post April Opex and the period post June employment until the post Brexit lows in late June.

  • For this bull market, the March 1st high is unusual. The only possibly comparative year is 2015, when the late Feb top remained unchallenged until a slightly higher high post May opex and then the decline started.

Bottom Line:

I delayed my April preview by a bit more than a day with the hope that the market would help provide some more clues as to its early April intentions might be. Alas, Tuesday’s inside day does not provide any new helpful information.

  • Still, April should be remembered for the consistency of its turns for employment, opex and the end of the month
  • Good Friday is more of a wild card as it is occurring before opex week begins
  • Turns for the ECB have been observed recently, so one may occur around April 27th – which also coincides with the end of month strength period.
  • The end of April strength in to early May is a solid, though short term edge.

Overall, the market does seem to have normalized, but the turns like the March 1st top or the Quad Opex top on Opex Wednesday are not quite what history would predict. For now, I will be watching the RUT 2014 analog closely as the SPX does look to be possibly following it.

Have a good month,

-D

 

Opex / post FOMC Comments for March 2017  (as of mid day on Opex day, 17-Mar-17):

Through Wednesday – even yesterday – the market conformed to the usual March opex pattern, but with the COMPLETE lack of volatility and what is currently a Wednesday opex week high, the market is acting a bit differently.

The market does not top that frequently on Fed Day. Last time was April 2016 (MAJOR TOP – Wed post opex and a 9 day 59pt pullback). Before that, there was the Thursday Fed day top on Opex Thursday in September 2015. Before that, one must go back to 2013. There have been 13 Fed day tops out of 52 tops (from 82 meetings) since 2007.

I have no strong and compelling evidence as to what might occur next. The standard March opex script given the rally from last Thursday’s pre employment bottom is a top of some sort late in opex week or post opex and then a pullback for at least a few days (The last three years it has been the Thursday post opex) and then a rally in to at least early April.

Here are my scenarios in terms of probability:

  • Market tops post opex – given the market is just 12pts from Wednesday’s high and the market has tended to close strong almost every week since the rally started in November, this still seems probable.
  • Market did top on Wednesday and it is headed lower with a pullback ending some time between the 23rd (Thursday post opex has been the pullback low the last 3 years) and the end of the month
  • Rally continuation – market pullback is minimal and the market continues going higher – this market has defied many naysayers, so a rally continuation can not be ruled out, though the last Quad opex rally continuation was in December 2003!

Other notes:

  • St. Patrick’s Day (17-Mar) is almost always an up day. Since 1992, it has been up 19 times and down 4 times
  • Please note the March reminders below – a significant top in March is rare and has not occurred since 2005.

Bottom Line

The market was a challenging one in January & February as it has not conformed to many of the usual turning points. This changed in March with the March 1st top, the bottom last Thursday pre employment and the rally in to opex.

  • A top of some sort and a pullback should now occur – if it did not on Wednesday.
  • Then a rally in to April does seem likely – possibly one like 2012 – that saw a significant top on the first trading day of April, as March is just not a month for significant tops.   (One should be aware that overall, 2017 does have a lot of similarities to 2012.)

The lack of true volatility in the SPX has been challenging. The RUT continues to be the index that has provided the most two way opportunity in the market.

Below, I have posted a lot of additional historical information that might be helpful.

Have a good weekend!

-D

Detailed Research

Current Conditions                                      (as of mid day on Opex day, 17-Mar-17)

The SPX is still very MFI OB on a weekly basis – but this has not been a reliable predictor of market tops.

The daily and hourly condition are now neutral. There was an hourly sell signal on the Wednesday. The Wednesday opex sell signals normally indicate a strong market that will tend to top the next day or a few days later.

Currently, the high for the week is on Wednesday. In March opex (since 1998), this has only happened during the very volatile week of March 2008 (major Monday bottom). It has happened a total of 10 times in 76 Quad opex weeks since 1998.

  • 4 MAJOR Bottoms (not relevant)
  • 1 Rally continuation (Dec 2001)
  • 4 tops on Opex Wednesday
    • Dec 2008 – 5 day, 69pt pullback
    • Dec 12 (Fiscal Cliff drama) – 9 day 70pt pullback
    • Dec 05
    • Sep 07 – 6 day 32pt pullback and then the final BIG Push in to the October MEGA top
  • 1 MAJOR Top on Monday post opex (June 2000)
    • NOTE: There are some similarities to the current market. There was a pullback on opex Thursday and Friday and then a BIG surge on the Monday post opex and an 11 day 52 pt pullback

It has happened more frequently when including all opex weeks since 1998.

  • 8 times out of 26 instances, the market topped post opex.
  • 4 times the market continued to rally
  • 14 times the market topped on Opex Wednesday. (8 MAJOR tops and 6 minor tops)

March opex Detail

2017 makes it the 6th year in a row that we have rallied in to March opex week. The last 5 instances have all produced tops of some sort during the latter part of the opex period (opex Thursday to the Tuesday post opex), BUT all of the pullbacks have been reasonably short term – the longest lasting 6 days. Also, the Thursday post opex has seen the end of the last THREE post opex pullbacks.

    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
    10. 2016 – (FOMC during opex week) The second pullback from the SIGNIFICANT February bottom ended on the Thursday before opex week (ECB Day) and the market rallied strongly in to opex week. The market was up strongly on Fed day and the day after and then climbed at a slower pace before topping out on the Tuesday post opex and pulling back 35pts to the Thursday post opex (and pre Good Friday)

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.

Unfortunately, March opex is no longer producing as many MAJOR Turns and the two quad opex tops in 2016 were minor ones.

 March Reminders

Given the expectation of a significant top 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:

  • 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)

 

COMMENTS (for the record) posted earlier regarding March opex week.

March 15, 2017 at 3:56 pm

Market is sticking to the standard March opex / FOMC script so far with the Tuesday low and now the rally in to the FOMC announce and Yellen’s press conference

With the strong up day, the market is similar to March 15 (+25pts on the day) and March 12 (+25 pts on the day) both of these had brief pullback tops on the Monday post opex.

In 2012, the SPX closed on Fed Day (a Tuesday) at 1396 (highs of the day) and topped on the Monday post opex at 1410 and then pulled back till the Friday at 1387 before rallying to a more significant top on Monday, April 2nd at 1422. (Market did not recover until it traded 1267 on June 4th)

In 2015, The SPX closed on FOMC day at 2100 and topped on the Monday post opex at 2115. It then fell sharply to 2046 on the Thursday post opex before chopping around until a rally from 2048 was ignited on 1-April.

There are a few other scenarios to consider, but given the SPX bottomed last Thursday (and the RUT yesterday), I would expect the market should remain bid for a few more days as Opex Friday has been the high of March opex week the last 3 years and 5 of the last 7.

 

March 2017 Employment Turning Point Preview  (as of late in the day on Thursday, March 9th )

The market breakdown to fresh lows for the week today sets up for a very interesting situation in the next few days.   Originally, I was going to provide all of the employment history and my usual info, but I think this preview will be better served by being short and to the point.

Per the March preview –

  • EMPLOYMENT (Late report on Friday, March 10th): Late employment reports almost always see rallies (15 instances since 2007). There have only been two instances when the market fell through a late employment report in to opex week (Jan 2009 & Jan 2016). This also fits with the market’s tendency to rally in to March opex week.

 

Current Conditions:

The MID and RUT have gotten quite oversold on an hourly basis and are approaching daily OS levels as well. They have both gone down MUCH MORE than the SPX.

The MID now has the hourly buy signal that I wrote about in the March preview

  • The general tendency is for the market to rally a day or two after the next buy signal is generated. After that, the persistent bullishness tends to fade and the market normalizes. The only time the market really major topped without a sustained rally after a month without an hourly buy signal was in early August 2013.
  • BUT, one challenge to the above statement is that the MID has an hourly buy signal on BOTH the Thursday before opex week and the Thursday before employment.
  • *** In January, 2016, the MID had this same combination and the market sold off hard until the bounce on opex Monday, post employment.
  • *** Overall, MID Hourly Buy signals on the Thursday before opex week are indicative of a market that will also be weak in to and likely during opex. The last two times there was a MID buy signal on the Thursday before opex week were May 2016 (Opex Thursday bottom – just less than 40pts SPX below the Thursday before opex week close) and Jan 16 – which clearly had the MAJOR bottom on the Wednesday post opex / post holiday.
  • Hourly Buy signals on the Thursday before employment also have a mixed record. They do not happen that often either. The last time was Jan 16. Before that was Dec 15 (big up on employment day – but topped at the close and fell 100pts in just over a week.

As always, prior to an employment report or a big event when the market is making fresh lows, there are three scenarios.

  1. Market bottoms on Thursday and rallies on employment day
    • Given this is the first correction of a MAJOR, sustained rally one just does not know what will turn the market. A rally is the standard March and pre opex play – but the risk is VERY High given the long rally
  2. Market bottoms on employment day and rallies in to opex
    • This is the usual market play, BUT NONE of the 15 previous instances of late employment days since 2007 have had an employment day bottom
  3. Market continues lower in to opex
    • This is what happened in January 2016. It would be unusual for March opex week as the market has only fall in to March opex week in 2011 and 2008 since 2007. BUT, the market in recent years has shown a bit greater tendency than previously to fall in to Quad opex week and then rally. (Sep 16 – Opex Monday bottom, June 16- Opex Thursday bottom, Dec-15 – Opex Monday bottom (Wild week!) June 15 – Opex Monday bottom)

Bottom Line

Risk is high here for fresh positions.

  • If one is long from great levels – well done. Just keep managing the risk.
  • If one is looking to get long or re-establish a long, the risk is high here. A rally is always possible at any time, but the historic probabilities lean right now, towards Quad opex week providing the best opportunity for a bottom and an oversold market rally.

The MID and the RUT are definitely the two indices that are the most oversold and will likely provide the most rally potential. As always, the BIG question is WHEN and the historical data suggest that opex is likely to provide the best opportunity.

Ever interesting,

-D

 

March 2017 Turning Point Preview (as of close of business on Friday, March 3rd, 2017 ):

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.   Apologies for being out of action for the better part of two months, I needed to focus on family matters.

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, 2013 and 2016, there were strong rallies with limited pullbacks and in 2014 and 2015, there were both good trading tops and bottoms.

I will admit – like so many commentators – that the persistent bullishness of the markets in January and February is somewhat surprising to me, but not totally. Given the condition of the market, I must admit history would have predicted a bigger pullback post opex and post the President’s Day holiday in February, but it did not happen. As almost all commentators have noted, there are a lot of unusual, but not totally unexpected or totally rare things occurring in the market right now.

The reason I write “not totally unexpected” is that Q1 and the month of July have been the two time periods during the year that can be the most persistently bullish.   Eventually, even in the most persistently bullish markets, turns do occur and the market normalizes and becomes more of a two way market. 2012 and 2013 are the two most recent years that share a lot of similarities to 2017. In 2012, the market normalized in early April (after one touch of the lower daily bollo in early March) and in 2013, the SPX had one touch of the lower daily bollo band in February and two in April before one really explosive move higher post April opex that ended post May opex.   It should be noted that 2012 and 2013 were the only two years since 2007 that did not provide good Q1 buying opportunities – other than the noted lower bollo band touches. 2017 has yet to provide any buying opportunities nor has the SPX approached its lower daily bollo band since the election.

Here are the March highlights:

  • ECB: Thursday, March 9th – The ECB meeting has been the cause of some decent volatility and turns, though there was just the rally continuation for the Jan 2017 meeting. In December 2016, the brief market pullback ended on the ECB day prior to the employment report. The post employment pullback in March 2016 also ended on the ECB day – the Thursday before opex week
  • EMPLOYMENT (Late report on Friday, March 10th): Late employment reports almost always see rallies. There have only been two instances when the market fell through a late employment report in to opex week (Jan 2009 & Jan 2016). This also fits with the market’s tendency to rally in to March opex week.

 

  1. OPEX week with FOMC (Marcfh 14th & 15th with press conference):   There is a VERY strong March tendency to rally in to March opex week! There have only been three times since 2007 that the market has fallen in to opex week and all of these were because of “crises” 2007 (Asia Crisis), 2008 (Bear Stearns) and 2011 (Japan Tsunami). These are also the only three times that March opex has been a MAJOR bottom since 2007.
  2. QUARTER END – There have been some turns around quarter end – but there is no consistent edge for them.

SPECIAL RESEARCH

  1. MONTH without an hourly MID buy signal – There was NO Hourly buy signal in the MID in February. This is rare. There have only been 9 previous instances of months without an hourly buy signal in the MID since April 2009. The last time was in July 2016.   The general tendency is for the market to rally a day or two after the next buy signal is generated. After that, the persistent bullishness tends to fade and the market normalizes. The only time the market really major topped without a sustained rally after a month without an hourly buy signal was in early August 2013.
  2. MAJOR TOPS in March – The last time the market saw significant tops in the month of March was in 2005. Since 1998, there have only been 4 significant tops in the month of March – 2005, 2004, 2002 and the MAJOR blow off top in 2000 on Friday, March 24th.

 Bottom Line:

The market has definitely had an amazing run since the pre election bottom. The failure to have a pullback of some significance post the election is surprising, especially as the market has generally provided good buying opportunities in Q1 since 2007 with just 2012 and 2013 being the exceptions. 2012 and 2013 are also the two years that 2017 is currently most similar to.

  • Both of those years did have late Feb / early March sell offs that resulted in buying opportunities at / near the lower daily bollo band which right now is at 2280 for the SPX.

Since 2007, the month of March has been primarily one for trading tops or significant bottoms. A significant top has not occurred since 2005, but long time traders will definitely remember the MEGA top on March 24th, 2000.

  • Right now with the market having had such an extended run since early November and with no MID hourly buy signal since January, a cautious approach to the market seems to be the most sensible option until there is either an hourly buy signal in the MID or there is a sharp multi day sell off.
  • The market’s tendency to rally in to the March opex week AND the tendency for the market to rally in to late employment reports does mean that any sustained weakness particularly in to Wed, March 8th or the ECB meeting on Thursday, March 9th should provide a decent long side trading opportunity.

I will be back later in the week with a more in depth pre employment preview.

-D

March Employment – Late Employment Report

  • Late employment reports tend to be bullish with the market tending to rally through the report. There have only been two instances since 2007 (Jan 2009 and Jan 2016) that saw the market fall through the employment report and in to opex. The full detail of the 14 previous late employment instances will be provided in the employment preview.
  • Since 2007, there have been 3 previous late employment reports in March. March 2012 saw a pullback end on the Tuesday before, while March 2013 was a rally continuation. In March 2007, the market had topped in February during an Asia inspired mini crisis – the market bounced in to the employment report and then MAJOR bottomed on opex Wednesday.
  • 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 and then rallied strongly in to a post opex top
  • In March 2016, the market topped on employment day and fell 40pts until the Thursday before opex (which was also ECB day – 2017 has the same calendar configuration).
  • In the last year, all of the employment tops (Mar 16, Apr 16, Jun 16, Sep 16, Oct 16 and Jan 17) have been post the employment report either on the employment day (3 times) or the Monday after (once) or the Wednesday after (twice)

 Quad Opex and FOMC in the same week

    • Rally in to Opex Week – there is a VERY strong March tendency to rally in to March opex week! There have only been three times since 2007 that the market has fallen in to opex week and all of these were because of “crises” 2007 (Asia Crisis), 2008 (Bear Stearns) and 2011 (Japan Tsunami)
  • 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, but the edge has diminished in March and June quad opex weeks to a certain extent – there were only minor tops in March 2013, 2014 and 2016. 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.
  • It should also be noted that in BOTH March 2015 and 2016 the post opex Market pullbacks were brief and BOTH ended on the Thursday post opex.

 

 First Day of March – Green Candle

Last Wednesday’s strong green candle was the 14th occurrence for the first trading day of March out of the last 20. It suggests that March may follow its normal somewhat bullish course, BUT, given the pullback since Wednesday, the following March instances should be noted. They all had pullbacks for a few days before continuing in to opex week.

  • 2015 – Strong green candle and all day rally, but that marked the early month high and the market fell until the Wednesday post employment and then rallied in to opex week
  • 2014 – The market gapped lower on the first trading day and rallied strongly for two days. The RUT then made a multi month peak while the SPX stalled, made a high on employment day and fell the whole following week before rallying in to opex week.
  • 2012 – Market pulled back sharply with 3 red candles and neared the lower daily bollo on Tuesday, March 6th before late employment report and then the market moved sharply higher
  • 1998 – Pulled back for 4 days from upper bollo band to 20 day MA

 Special Research – No Hourly Buy Signal in the previous month – There have only been 9 months since April 2009 that did not have an hourly buy signal.

  1. Aug 2009 – It was 56 days between buy signals – The first signal occurred on Wed, 2nd Sept right before employment this one was a brief 9:30am RSI signal after a 4 day 48pt correction and then the rally continued for another 2 weeks before entering a more normal period
  2. Jan and Feb 2012 – It was 82 days between between the Dec 14th opex buy signal and the Mar 5th MFI signal – the market bottomed on Tuesday, Mar 6th with a 9:30am RSI signal after a 4 day 36pt correction – it then continued up for another 13 days before the markets topped post opex and became more volatile
  3. Feb 2012 See Above
  4. Jan 2013: Went 55 days between 27-Dec signal and 20-Feb 2:30pm RSI signal – Initially, there was just a 2 day correction and the SPX actually bottomed the next day and then rallied sharply, there was subsequently a second RSI signal at the close on Mon Feb 25th – market made slight new lows the next day and then rallied for 16 days before becoming slightly more volatile with a minor top on Opex Thursday– though no buy signals occurred in March 2013
  5. March 2013: Went 37 days between the late Feb and early April buy signals. SPX topped on the Tuesday pre employment post Good Friday in early April and fell in to employment day, bounced and then made a final bottom in April opex
  6. July 2013 – (49 days) AGAIN a long, long period between hourly buys – you would have been crushed by the one on the Wed of June opex week post FOMC…. But that was then the last one until the Wed post Aug employment. Again, there was a minor top post July opex that was good for 3 days and 25pts of weakness
  7. June 2014 (50 days) – While the rally from May opex to the July employment report was not relentless, there were a few 3 day 25plus point pullbacks, it was persistent enough that all weakness was bought until the market peaked on July 3rd. The early July top was the summer peak for the RUT and the MID and was the start of a one week 32 pt SPX pullback as well as the start of the July topping process
  8. July 2016 – The market had had a panic sell off due to BREXIT in late June. The market then started a strong relentless rally in July that did not properly end until the Wednesday post employment in September. The August buy signal came on Aug 2nd. The market did very little during August

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
  • 2016 – None – while Brexit produced a sharp drop in late June, the market recovered quickly, so it was not a significant top

 

January 2017 Turning Point Preview (As of close of business on Tuesday, January 3rd):

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

January is really a hit or miss month for the Turning Points. In 2014, 2015 & 2016, the market had substantial volatility with significant turns either side of opex week as well as at other times during those months. Similar post opex turns were also seen in 2008, 2009 and 2010. While in 2011, 2012 and 2013, the market generally had strong, fairly persistent rallies with limited turns. In fact, the SPX never even touched its 20 day MA in either 2012 or 2013 and it just had two brief touches of it in 2011.

Right now, there are no pointers as to what might be in store for January 2017, so we will just need to see how the month evolves.

Here are the January Turning Point highlights:

 Employment Report

Starting in 2010, the January employment report has been characterized by short term turns lasting just a few days or rally continuations. Effectively, there is NO EDGE for the January employment report, especially as it frequently occurs on the second Friday of January, though not in 2017

  • In 2016 (late report), it was a Monday after to Wednesday after deeply oversold 50pt rally.
  • In 2015 (late report), it was a 5 day 79pt employment day top and pullback in to Opex week.
  • In both 2013 and 2014, there were just very short term – minor tops on employment day.
  • In both 2011 and 2012, the SPX saw rally continuations.

The last 4 employment reports have all produced significant moves. In November (employment day) and December (day before), the market produced significant bottoms. While the September report (Wed after post holiday) and October report (Mon after) produced sharp, short pullbacks of 69 (Sep) and 55pts (Oct)

 For now, the expectation is that any move around the employment report is most likely due to the technical condition of the market than anything related to January’s specific employment report tendencies.

 MLK holiday (during opex week)

When the market is closed for the MLK holiday on opex Monday, ALL of the historical edges for both January opex and the MLK holiday (generally a turn post opex and post holiday) disappear.

  • There have been 7 instances of the MLK holiday occurring on opex Monday since 1998 and there was only 1 MAJOR Turn – a MAJOR Top on the Friday before the holiday in 2000.
  • In 2012, 2006 & 2001 the market continued to rally
  • In 2011 and 2007, there were very short term tops that were more related to opex dynamics than the holiday
  • The same goes for the brief post holiday bounce in 2005. (The market bottomed post opex)

Overall, holidays in 2016 produced a substantial number of turns – generally post holiday (except for the Thursday before MEGA bottom in February), but given the MLK during opex week history, there is no edge for this particular holiday in 2017.

 January Opex Week

While January opex week has a history of producing a lot of significant turns, most of these have occurred on Opex Friday (2015) or post opex (2008, 2009, 2010, 2014 & 2016) when the MLK holiday has been post opex.   With the MLK holiday on opex Monday, the January opex edge disappears.

Opex did produce its share of MAJOR turns in 2016 with four MAJOR bottoms in January, May, June & September, as well as two MAJOR post opex tops in April and October, so a significant turn is possible, but it is not as likely given the history of MLK holidays occurring during opex week.

 Central Banks: FOMC – Jan 31st / Feb 1st (no press conference) and ECB – Thursday, the 19th

  • The FOMC meeting is actually a Feb 1st event in 2017, so there will be no January event.
  • The ECB meets on Opex Thursday, Jan 19th. Up through March 2016, the ECB meetings did seem to help create some significant market moves, but since the post ECB meeting bottom & rally in March 2016, the ECB meetings have had very limited apparent market impact.

Other Observations

  • The December price action with the pre FOMC top on opex Tuesday has continued to follow the price action referenced in my December holiday preview that was seen in December 2005 & 2006. In 2005 and 2006, the market saw weakness until hitting the lower bollo band in January and then the market rallied (quite quickly in Jan 06 and more slowly in Jan 07)
  • Post Christmas holiday tops,: While the post Christmas holiday weakness may have ended pre the New Year’s holiday (similar pullbacks were seen in 2009 & 2010 ) at 2234, it should be remembered that the market topped post Christmas in both 2014 & 2015 and the market was weak for most of January in both of those years. For now, 2234 will be an important level to determine whether last week’s weakness was just a brief pullback or whether it is something potentially more significant.
  • Since 1998, There have been 9 Decembers that saw the SPX close above the upper bollo band at some point in December. Other than 2003, the market did see some weakness at some point after these periods. The three most recent occurrences were in 2013 (stayed elevated until declining sharply post Jan 14 opex week), 2012 (declined from opex Wed to Dec31st at the 200 day MA) and 2009 (same as in Jan 2013 – sharp decline – post Jan 2010 opex)
  • The Presidential inauguration is held on January 20th (opex day), There was no noticeable inauguration impact in 2013. The market did bottom post opex on Jan 20th in 2009 and on Monday, Jan 24th in 2005. In 2001, there was an all month rally until Jan 31st, and there was no weakness around the inauguration.
  • The current technical conditions are neutral and provide no edge.

Bottom Line

The market pullback to 2234 on Friday, Dec 31st did release some of the pressure that I had noted in my Dec 22nd holiday preview. It is too early to tell whether that was enough of a pullback in time and price or whether further weakness in both time and price is needed.

  • Unfortunately, the history of the month of January since 1998, especially with the MLK holiday during opex week offers few clues and limited turning point edges this month.
  • The post election rally and the December price action were unusual, but again with the pullback till Dec 31st, the market has followed the pattern that was seen in other Decembers that were strong in to opex week has now been followed as those other months did also see some month end weakness.

For now, my expectation is that while it is possible the traditional turning points of employment, the MLK holiday and opex will contribute to market turns during this month, I think it is equally, if not more likely that market technicals and sentiment will be more of a driving factor this month as none of the turning points at this point in time offer particularly strong probabilities.

If the market does hit an extreme that might provide an edge either pre or post the employment report, I will provide an update, otherwise I expect to be fairly quiet this month given the limited historical edges of the turning points for this particular January configuration.

ALL the BEST for 2017!

-D

 
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