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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.

August 2017 Turning Point and Employment Preview

(as of close of business on Wednesday, August 2nd) 

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

July Perspective

The market remained persistently bullish in July.   As long as the persistent bullishness remains, the market will have limited turns. While the low for July was on Thursday, July 6th – the day before employment. The key day was Wednesday, July 12th which was the gap up higher that allowed the market to rally strongly in to opex week. (REMINDER – these rallies in to opex week have been occurring since October 2016!) The ALL time high and the high for July was on Thursday, July 27th – the day after the FOMC date. Right now, the market continues to follow the persistently bullish months of July 2013 and July 2016.   The important thing to remember is that the performance of those markets diverged in early August.

  • In 2013, the SPX topped out on employment day and then declined until late August
  • In 2016, the SPX had two days of weakness on August 1st and 2nd – down 31pts in total before heading higher

It is too early to tell whether either of these months will be a useful analog for August 2017.

August tendencies

 Key points:

  • Many more MAJOR bottoms than MAJOR tops
  • Opex is very good for turns, but if the market is rallying, then it may just be trading range top and pullback. Post opex bottoms are generally MAJOR ones!
  • Last Tuesday of August and first Tuesday of September have frequently been local turns or quite near local turns 

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! – except for 2016 when the rally was only 46pts!

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)

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. Also, one should note that the August 2016 high held until November 2016, but the pullback from that high was not particularly sharp or deep. 2016 was also a three month high, which was not exceeded till November opex, but the high was not significant like in 2008 or 2002.

August Employment

There are definitely turns for August employment occurring, but there has not been a MAJOR one since the employment day top in 2013. The old wisdom for the August employment report was to wait until the week after the employment report to position oneself. This worked particularly well in 2011 when the market collapsed post employment until the Tuesday post employment.

  • This is no longer the case – instead with the exception of the persistently bullish period in August 2016, the primary employment turns have been on employment day (2015 minor bottom, 2014 – minor bottom, 2013 – Major Top and 2009 – minor top).
  • In 2012, there was a MAJOR employment bottom on the day before employment and the day after the FOMC.

 If the SPY daily RSI (9) remains above 65, then the SPY is likely to close higher on employment day (the study was last published in June)

All of the moves around employment have recently been minor turns with the exception of the MAJOR bottom on the Thursday before employment in July.

With the tight ranges within last Thursday’s range and the high RSI, there really is NO EDGE right now for this week’s employment report. 

August Opex

August opex tends to favor MAJOR bottoms and if the market is rallying, then smaller tops and pullbacks back in to the trading range.

The last 6 August opex turns have all been post opex! The MAJOR bottom on the Monday post opex in 2015 is the most dramatic one. There were also MAJOR post opex bottoms in 2010 and 2011.

Note: It should be highlighted that there was a rally continuation in August 2014 after the oversold pre opex week bottom. August opex also had rally continuations in 2000, 2003, 2004 and 2006 and a very rare fall continuation in August 2005. August, January and February are the most common months for not having opex turns.

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. It does not happen every year, but the low close on the kast Tuesday in August and the bottom on the first Tuesday of September in 2015 wer a good reminder of this market oddity. In 2016, the market made a 1pt higher high on the first Wednesday of September and then started its sharp decline in to the opex Monday bottom.

I will post more on this later in the month. 

Current Conditions

SPX continues to trade in incredibly tight ranges. For the 3rd time in 2 months, it is trading inside the range of a large range day

  • The Friday June 9th large range lasted for 5 days. On the 6th day, on the Monday post opex it was broken and the SPX closed on the highs. That marked the high for the month of June and the market declined in to late June
  • The Thursday, June 29th range was broken on the 8th day within the range and the market then powered higher
  • The Thursday, June 27th range has lasted for 4 days so far.

Here are the current technicals for the SPX:

  • Monthly – quite OB with RSI (9) of 82 and MFI (14) of 82 as well – The MFI reading is a 10 year high, but monthly technicals have not proven helpful in recent years
  • Weekly: Also, OB with an RSI of 75. SPX hit a weekly RSI reading of 82 in late February before struggling a bit in March
  • Daily – current RSI is 68 – RSI reading at Thursday’s close will be important as RSI readings above 65 are not bearish for employment day.

There is a real divergence among the indices in the last week with the MID and RUT returning to their June trading ranges and the DJIA making new all times highs on a daily basis and the SPX not pulling back much from last week’s all time high.

One reminder: The MID consistently is bottoming when it gets an hourly buy signal within +/ – 30 minutes of the buy signal occurring for the 19th time in 20 buy signals, this occurrence happened again on Wednesday, August 2nd.

Also, it is important to note that the MID and RUT right now are the most volatile indices and they seem to be providing the best trading opportunities. The MID and RUT (after Wednesday’s sell off) are both off over 40pts from the highs that they made – pre FOMC – on Tuesday, June 25th. – The index divergence that really has existed all year between MID / RUT vs NDX & SPX really is quite something.

Bottom Line:

The persistent bull was alive and well in July. The BIG question now is whether this August trades like August 2016 (persistently bullish until post employment in September) or more like August 2013 where the August buying opportunity did not emerge until the end of the month.

The persistent bullishness remains and must be respected, BUT, the technical studies (for the BEARS) regarding the SPX touching its 20 week MA (now at 2409) and the Q2 correction that were posted here:

https://pugsma.com/denalis-turning-points-2/denalis-turning-points-2017/

Still exist and still are appropriately cautionary.

The August 2013 scenario does appeal, but one must ask WHAT is the possible catalyst for such a move as the SPX, NDX and DJIA have shrugged off all potential bearish catalysts to date?

For me, the two key points are:

  • August is a month to patiently wait for the market to get strongly oversold and to play the longside. This approach requires patience, but paid off well in 2010, 2011, 2013, 2014 and 2015. This is what I will be looking for and waiting for this month.
  • MID and RUT are the indices that are moving the most and seem likely to continue to provide the best opportunities on both the long and short side.

Just two more weeks of summer vacation for my kids! Once they are back in school, I will be more regular with my research. Next post is likely to be during August opex week.

ENJOY!

-D

 

August DETAIL and supporting evidence

AUGUST LOWS (and buying opportunities) since 1998

First week lows – pre employment (2)

  • 2016 – Brief 30pt pullback from Monday, August 1st to Tuesday, August 2nd which was the low for the month
  • 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   (after a sell off from employment day
  • 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 – This low kicked off a sharp 100 plus pt rally in to September opex

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.

 

FOMC Meeting (July 25th & 26th) Turning Point Preview for July 2017:  (as of midday on Tuesday, July 25th – day before FOMC)

The Fed meetings that do not have a press conference occur in January, April, July and October. Overall, the SPX has had significantly smaller changes on the day of these non press conference Fed days.   The median difference between the press conference days and non press conference days is almost 10 SPX pts.

But that does not mean the market has not been turning around these non press conference days. In fact, since January 2015 there have been many more MAJOR turns than minor turns around these non press conference Fed meetings, but most of the turns have occurred before or after the Fed day (just May 17 and Apr 16 have turned on Fed day), so they have been driven by other factors than just the FOMC meeting and announcement

  • May 17 – minor bottom on Fed day (employment week) and a 6 day rally
  • Jan 17 – MAJOR Bottom the day before the Fed day and the start of the strong all month rally in February
  • Nov 16 – MAJOR Bottom on employment day and the start of the epic Trump rally
  • Jul 16 – minor top on the Monday after and a 31pt pullback, the largest in 4 weeks
  • Apr 16 – MAJOR TOP on Fed day and the start of a 3 week pullback in to May opex week
  • Jan 16 – MAJOR Top on the Monday after FOMC and the final decline of the Jan-Feb 16 sell off
  • Oct 15 – MAJOR Top 4 days after and then a 95pt slide in to November opex week
  • Jul 15 DOUBLE Turn – bottomed on the Monday before the FOMC after a sharp one week sell off and then topped again on the Friday after the FOMC
  • Apr 15 – minor top 2 days before Fed Day and a 48pt pullback in 3 days
  • Jan 15 – MAJOR Bottom on the Monday after and the start of a massive February rally

July FOMC Meetings (July 25th & 26th – 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.

  1. 2016 (26th&27th of July) – Market had been in a relentless rally all of July. Market topped briefly on the Monday post FOMC and fell 31pts which was the largest pullback in 4 weeks
  2. 2015 (July 28th – 29th) – Bottomed on Monday before and rallied 52 pts to the Friday after
  3. 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.
  4. 2013 – (30-31-Jul: – pre employment) MAJOR TOP 2 days after on employment day After a relentless rally that barely paused all of July, the market continued to run post FOMC in to the employment day, the market topped near the close and fell for the whole month of August
  5. 2012: (31-Jul – Aug 1st : pre employment) – topped on the Monday pre FOMC 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.

FOMC Meeting Post opex   (See detail data below)

While post opex week FOMC meetings were reasonably common until March 2013, there has only been one Post Opex FOMC meeting since then in September 2016. That particularly meeting was a MAJOR top on the day after the FOMC after a strong rally on Fed day.

There have definitely been turns around these post opex FOMC meetings, but it is not clear whether they are opex or FOMC related or a combination of the two.

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.

  1. 2016 – In a persistently bullish month, the only slight weakness since early in July was seen from Monday, August 1st to Thursday, August 4th.
  2. 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
  3. 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
  4. 2013 Rally stalled from 23th to 26th and then continued until MAJOR TOP on Friday, August 2nd at 1710
  5. 2012 – Double Turn – Market peaked on Monday, July 30th and pulled back to Thursday August 2nd (FOMC week)
  6. 2011 – not seen – Post opex rally ended on Thursday, July 21st and the market fell dramatically until Tuesday, August 9th.
  7. 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
  8. 2009 – brief pullback from Mon, 27th to Wed 29th and then more of a stall and pullback on Friday, August 7th
  9. 2008 : Post opex pullback ended on Monday, July 28th at 1234 and rally continued to 11-Aug
  10. 2007 After July opex top – sharp bounces on Wednesday, the 1st and then Monday, the 6th of August

Current Conditions

NEW All time highs and one of the higher daily RSI (9) pre FOMC at 74 that has been seen on the day before an FOMC meeting.

  • The last high daily RSI reading pre FOMC was in Dec 16 when the RSI was 84 and the market had a quick one day 30pt pullback from the day before Fed day to Fed day, but that was it for the sell off.
  • Out of the 84 Fed meetings since 2007, only 5 have had RSI readings above 75. Three of those were in the persistent market of 2013 (Jan 13 – rally continuation, Sep 13 MAJOR Top and Oct 13 – minor top) and the other one was in May 2007 – that was just a minor top before the market continued higher.
  • The market is also Hourly OB and 10 min OB. Hourly OB on the Tuesday post opex when there has not been a significant sell off during opex week is a reliable sell signal WHEN the market is NOT persistent – but right now the market is persistent, so it is not a signal that can be used to justify selling.

Bottom Line

The market is back in its persistent mode and this persistent mode must be respected until it has clearly ended. The two recent July persistent modes were in July 2013 and July 2016.

  • In July 2013 there was a brief Wednesday post opex to Friday post opex sell off before the market continued higher until August employment day and then sold off most of August.
  • In July 2016, there was a brief sell off at the start of August, but the market remained persistent until post Labor Day in September.

If the market was not back in its persistent mode, a number of previously reliable, high probability sell signals would be flashing including gap up on Tuesday post opex and hourly sell signals on the Tuesday post opex…. But when the market is persistent, particularly in January and July, these signals do not always work…..

It is possible that the FOMC and the power of the post opex forces will put an end to the current rally, particularly with the high daily RSI pre the FOMC meeting, but the persistence of the market must also be respected.

I do not have a strong view. I can provide historical justification for the market to top out and fall in to August (many of these were covered in the July opex preview like the SPX above its upper daily bollo band), but the persistent bull has also taught me that the market can and will remain persistent through numerous turning points.

For now, the market continues to be impressive and persistent and the market’s persistence must be respected.

I will be back next week with the August preview – remember August is a month that is generally ALL about providing a good buying opportunity at some point during the month (though this did not happen in August 2016)

-D

DETAIL DATA

FOMC – The week after Opex

While post opex week FOMC meetings were reasonably common until March 2013, there has only been one since then in September 2016. That particularl meeting was a MAJOR top on the day after the FOMC after a strong rally on Fed day.

There have definitely been turns around these post opex FOMC meetings, but it is not clear whether they are opex or FOMC related or a combination of the two.

    • Sep 2016 – The market had bottomed on Opex Monday, but had done very little until a strong rally post a dovish press conference from Yellen. The market gapped up on the day after the FOMC meeting and MAJOR topped and fell sharply for a few days before slowly heading lower in to the November lows.
    • Mar 2013: Topped on opex Thursday and fell in to the day before Fed – Tues post opex and then bounced in to early April – quite choppy
    • October 2012: MAJOR Topped on the Thursday of Opex week and fell through the FOMC meeting – bottoming two days after – really quite a rare occurrence…..
    • June 2012: Topped on the day before FOMC – the Tuesday post opex and fell for 6 days and 54 pts
    • April 2012: Major Bottomed on the Monday post opex which was the Monday before the FOMC and rallied hard in to the 1st of May
    • Jan 2012: Made a minor top on the day after the FOMC and fell for 33 pts and 4 days
    • Sep 2011: Had a countertrend rally up all during opex and then MAJOR topped on the Tuesday post opex which was the day before Fed
    • June 2011: Market had made a MAJOR bottom on Opex Thursday and bounced in to the FOMC – but fell on Fed day for 1 day and 36 pts before resuming rally
    • Sep 2010: Minor Top – Quiet opex week – SPX then topped on Fed day, but just fell for 3 days and 26 pts
    • June 2010: Major Top Gapped up on the Monday after opex pre FOMC and that was the top and then fell till July employment
    • Sep 09: Major Top – market had peaked on Opex Thurs and Fell till Monday after opex and then rallied in to Fed day (Wed post opex) and then fell again till October employment – down 60pts
    • June 09: Minor Bottom post opex – Markets fell hard on Monday post opex and then made a low on the Tuesday after opex which was the day before FED day and then rallied for a week and 44 pts
    • June 08: Bounced from day before FOMC and on FOMC day and then fall continued
    • Mar 2007: Minor topped 2 days after FOMC and fell for a week and 31pts, but SPX had MAJOR BOTTOMED on the Wed of opex week having fallen hard for a few weeks

 

Opex Preview and ECB Comments for July 2017  (Preview as of mid afternoon on Wednesday, July 19th, 2017)

In the July preview, I noted the following historical points:

FOR THE BULLS:

  1. The high for the year has not been in June since before 1950. Right now, the all time high is on Monday, June 19th at 2454
  2. The July high is almost always higher than the June high unless the market is very bearish. The last time the June high was not exceeded in July was in 2010.
  3. The high for the month of July is RARELY on or near the first trading day of the month. The last time was in 2008 (Wed, July 2nd) and before that was during the 3 years that had significant July sell offs (2004 – July 26th low, 2002 – July 24th low and 2001 – July 24th low)

FOR the BEARS

  1. It has been a LONG time since the SPX has traded at its 20 week MA (Cobra has cited something similar to this a fair amount this spring). The 20 week MA is at 2393. It was last touched during the week of November 7th last year. This is by far the longest duration rally without a touch of the 20 week MA since the bull market began in 2009. In fact, it is the longest period since 1995.
  2. Also, one must go back to 1995 for the smallest pullback in the first half of the year. Back in 1995, the largest pullback in H1 was 1.7% and in 2017 it was 2.8%. Interestingly, 2015 was another year with just a very small maximum pullback (3.6%) during the first half of the year and the SPX had a very difficult 3rd quarter.
  3. There has also only been one year since 1998 that has not had an April – July correction of some significance in terms of either time or price. The minimum duration correction was 14 days (5.2% in 2003). That year was 2014. While the SPX did manage to slightly surpass its early July high on July 24th after a sharp rally from its opex Thursday bottom, the SPX did fall almost 100pts from July 24th to August 8th.

I have highlighted them again, as all three points for the Bulls have actually already occurred.

While the historical pattern, to date, has favoured the bulls, the July opex history now shifts towards the bears, UNLESS the persistent bullishness that was seen in 2013, the summer of 2016 and since the election continues to persist.

July Opex

July Opex has a very STRONG record for turns (many of them MAJOR) – though when the market has been very OS in June (2013 and 2016) or made significant lows during the 2nd week of July (2005 and 2009), the market has continued its rally or just had a minor top (2013). The market has not experienced that type of oversold condition since the May opex bottom.

  • MOST, but not all turns have occurred post opex. Since 2007, there are just three exceptions. There was a minor opex Thursday bottom in 2014 and an opex Thursday top in 2012 that resulted in a very powerful 5 day 52pt sell off and the MAJOR bottom below the lower bollo on opex Tuesday in 2008
  • Oddly, in recent years most turns have occurred between the 18th and 20th of July.   The other popular date has been the 24th with MAJOR Bottoms in 2000 and 2001 post opex on that date and the minor top in 2013 occurring on that date as well. This year July 24th is on the Monday post opex, which is by a slight margin the most popular opex period turn time – just something to keep in mind.

Since 1998:

  • MAJOR TOPS: SIX   (1998, 1999, 2000, 2007, 2012, 2015)
  • MAJOR Bottoms SIX   (2001, 2002, 2006, 2008, 2010, 2011)
  • Minor tops   TWO (2003, 2013)
  • Minor Bottoms TWO (2004, 2014)
  • Rally continuations – THREE (2005, 2009, 2016)

Recent Opex Weeks

Other than the rally continuation in February, the SPX has had a series of primarily minor turns during 2017.

  • June 2017 (FOMC during opex week) – minor top on Monday post opex and an 8 day 34pt pullback
  • May 2017 – MAJOR Bottom on Opex Thursday – Sharp Opex Tuesday to Opex Thursday sell off and then a strong rally to new highs in to June
  • April 2017 minor top on Wednesday post opex – Market bottomed below the lower bollo on the Thursday before opex week (and Good Friday) and rallied during opex week. It then accelerated higher post opex on the French election results. It had a minor top on the Wednesday post opex and pulled back slightly for a week. (MID and RUT had much larger pullbacks)
  • March 2017 –(FOMC during opex week) MAJOR TOP on Opex Wednesday post FOMC – market pulled back particularly strongly on the Tuesday post opex and bottomed with a gap down below the lower bollo on Monday, march 27th
  • Feb 2017 Rally continuation – Market broke out on Feb 9th and continued higher until topping on March 1st
  • Jan 2017 (Inside week) – minor bottom on Monday post opex – market had an inside week and broke the range lower on the Monday post opex, bottomed and immediately rallied till the Thursday before pulling back again

ECB Meetings   (ECB Meeting is pre market on opex Thursday)

When the ECB changed to a 6 week schedule in January 2015, the market started to make a significant number of MAJOR turns either shortly before or shortly after the ECB meeting.

  • The SPX did bottom on the ECB meeting day in March 2017, the day before a late employment report, but other than that turn there has not been any particularly distinct correlation between turns in the SPX and the ECB meeting date since March 2016.
  • Still, it is good to be aware of the fact that there is a potentially market moving event that generally occurs with the Draghi press conference starting at 8:30am on Opex Thursday morning.
  • The last two opex week ECB meetings were in January 2017 and October 2016. Both turned on the Monday post opex a few days after the ECB meeting. The ECB meeting did not appear to have any particular impact on the SPX during either of those opex weeks.
  • The one technical condition to highlight is the SPX is above its its upper daily bollo band. This condition does lean slightly bearish as opex periods that have seen the market trade above the upper bollo during opex period used to have a bearish bias through April 2016 (MAJOR TOP on Wednesday post opex). Alas, there have been 6 instances since then and all have just seen the market stall / minor top before heading higher. The stats since 2007 with the SPX above the upper bollo band during the opex period are as follows:
  • The current conditions are somewhat OB, but OB during the middle of opex week does not provide a trading edge. The daily RSI (9) of 71 and MFI (14) of 58 does not provide any edge with relation to opex turns.

CURRENT Conditions:

  • MAJOR TOPS (17) – At least 50pt pullbacks, if not much more significant and long lasting tops.
  • Minor Pullbacks (17) – 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 (5) – Normally a major significant low that month (Oct 2013, July 2009) or the previous month (Apr 07). Though, Feb 2017 was just a breakout to new all time highsAgain: This edge has not been seen since April 2016 – but it is a very strong edge for July opex with only July 2016 as the only July exception.
  • The persistent bull continues to be strong and persistent.   All of the unusual market characteristics that I covered in the July preview still exist.

BOTTOM Line:

  • If July opex follows history, then it is possible that the Bears might enjoy the weeks following July opex a bit more….
  • Though given the way the market has traded in 2017, and if the market characteristics that really have existed since Spring 2016 continue, then the persistent bull might only allow a minor top and pullback to occur.

As a reminder, the ECB is tomorrow, opex Thursday. The ECB has had a limited impact lately. The FOMC is next week. I will post an FOMC preview early next week.

While the market does continue to follow the historical patterns to a certain extent, their impact has been much more limited given the narrow ranges and low volatility. For now, it seems best to stick with what is working, as there is no telling when these persistent bullish periods will come to an end…. Though July opex does provide one of the stronger historical edges.

I am on vacation in Maine with my family, so posting will be light.

-D

July Opex Detail Info

  • 2016 – Rally continuation – After the significant BREXIT bottom in late June, the market was persistently bullish with very limited pullbacks after a very strong rally in to opex week. Market stayed strong until early September
  • 2015 – MAJOR TOP on the Monday post opex (July 20th) and a sharp 69pt drop to the 200 day MA on July 27th
  • 2014 – Minor bottom on Opex Thursday (July 18th) – a strange week with a Wednesday high and then a sharp move lower in to a Thursday low at the lower bollo and then a bounce for a week to the upper bollo – topped on Thursday post opex and fell hard in to a second week of August low
  • 2013 – Just a minor top on the Wednesday (July 24th) 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
  • 2012 – Double Turn There was a MAJOR TOP on opex Thursday (July 19th) and a MAJOR bottom on the Tuesday post opex (July 24th) – very volatile
  • 2011 Major bottom on Monday post opex (July 18th) and a strong 3 day 51 pt bounce before the summer slide resumed
  • 2010 Double Turn Primary turn was a Major Bottom – Tues after opex (July 20th) and a strong rally to July 27th. SPX did make a high for the week on opex Tuesday and sold off 38pts in to the post opex low
  • 2009: Made a very strong bottom on the Wednesday the week before (post holiday and post opex) and just rallied the rest of July with opex having ZERO impact
  • 2008 Major Bottom on opex Tuesday (18th) as SPX had been sliding for weeks and was very oversold
  • 2007 Major Summer top on Opex Thurs (July 19th) and a long slide that did not end till August opex week
  • 2006 MAJOR Bottom on Opex Tuesday (18th) after a slide from the beginning of the month – the low was a higher low re-test of the June opex low
  • 2005 Rally continuation – Market bottomed with a BIG gap down and rally on the Thursday before opex week
  • 2004 minor bottom on Monday post opex (July 19th) – SPX was in a strong run lower along the lower bollo band. It did bottom on the Monday post opex to bounce up to test the 20 day MA and then continued lower till another bounce on July 26th. Final bottom was in early August
  • 2003 Minor top on Opex Monday (July 14th) – June pullback had ended on July 1st at the upper bollo. SPX then rallied to the upper bollo and topped on opex Monday for the month. First bounce was on Monday post opex.
  • 2002 – MAJOR Bottom on Wednesday post opex (July 24th) – Market had been falling relentlessly since March and just collapsed during July. It bottomed with a daily RSI 9 of 13.
  • 2001 – MAJOR Bottom on Tuesday post opex (July 24th) – Market had rallied in to opex week and topped on opex Thursday and then had a rapid collapse to new lows for the month below the lower bollo post opex. Market then rallied in to early August
  • 2000 –MAJOR TOP on Opex Monday (17th) – The SPX started a relentless rally on July 6th that ran along the upper bollo – it topped 6 pts above the upper bollo and fell sharply till July 28th
  • 1999 – MAJOR Top on Monday post opex (July 19th) SPX had a strong run higher from early June. The move accelerated above the upper bollo on June 30th and kept running higher until topping on the Monday post opex. It then collapsed and ran all the way down to the 200 day MA on August 10th
  • 1998 – MAJOR TOP on Monday post opex (July 20th) – After bottoming in mid June, the market broke out in late June and went relentlessly higher until peaking on the Monday post opex in an emerging markets driven collapse that did not end until early October.

 

July 2017 Turning Point and Employment Review    (as of close of business on Monday, July 10th)

 This is definitely one of the most unusual markets that I can remember. The SPX has had TWO wide range days in the last month (Friday, June 9th and Thursday, June 29th) and the entire week’s trading of the following week has been contained within the range of the wide range day….(in fact, the SPX is still within the range of JUNE 29th) it almost does not seem possible to have something that unusual occur twice in a month.   For me, it does mean that some of my work seems slightly less relevant… BUT it should be noted that the day the range broke in June was the day of the all time high and the market reversed.

I have been delaying this July preview in the hope that there might be a move outside of the range from the 29th. But delaying it further, no longer makes sense.

July Perspective

Until 2013 and 2016, the market path during the month of July had one of two distinct signatures. It was either a V shaped reversal or a clear upward or downward sloped trading range marked by sharp reversals in almost every week. In 2013 and 2016, with the reversals higher after sharp sell offs during the 4th week of June with multiple days below the lower bollo, the market just trended higher during the month of July.

Given the tight trading range during the month of June, the conditions that existed in 2013 and 2016 do not exist.   Given the SPX is also within the June 29th range, there is no indication of whether the SPX might have an upward or downward sloped range during this month.

4th of July Holiday and 1st trading day of July

The first trading day of July was up day for the 17th time in the last 20 years. The highs last Monday also created a short term pre 4th of July holiday top.   There have only been a few recent pre 4th of July holiday tops like the one that has just occurred. As a reminder, most mid week 4th of July turns have been MAJOR ones which would imply a 50pt or more drop from last Monday’s 2439 high.

  • In 2014, the SPX topped on Thursday, July 3rd (employment day) and fell for a week and 32pts before starting a rally on the Thursday before opex week that finally ended on Thursday, July 24th at the upper bollo
  • In 2006, similar to 2017, the market topped on the first day of July and at first it gently slid and then it fell sharply during the last 3 days of the 2nd week of July and bottomed on opex Tuesday, July 18th at the lower bollo band.

July Employment

In 2017, the SPX has been consistently turning on employment day or before employment. The turns have all been small and lasted between 5 and 8 days. With the rally off of last Thursday’s low at 2408, it is possible that the market is in a similar short term move higher.   Still, really no edge right now, except to note that the SPX has turned before employment or on the employment day every month since last November, which is again unusual.

Rallies in to Opex week

One of the more remarkably consistent edges that the market has displayed since last October is the rally in to opex week. The last time the market did NOT rally in to opex week was in September 2016. Here is when the market bottomed and bounced in to opex week and then what happened during opex week:

  • Oct 16 – Thursday before   . MAJOR TOP on Monday post opex
  • Nov 16 – Friday week before (employment day) – Rally continuation
  • Dec 16 – Thursday week before (pre employment) – minor top on Opex Tuesday
  • Jan 17 – Thursday before (with a very tight range) – minor bottom on Monday post opex
  • Feb 17 – Wednesday before   (primarily as RUT made a serious low on this day) – Rally continuation
  • Mar 17   – Thursday before   (pre late employment) – MAJOR TOP on Opex Wednesday
  • April 17 – Thursday before (before Good Friday holiday) – MAJOR rally and a minor top on Wed post opex
  • May 17 – Thursday before – Opex Tuesday high and then a significant sell off and a MAJOR Bottom on Opex Thursday
  • June 17 – Friday before (Big range day) and a small rally in to opex week – then all time high Top on Monday post opex

Thursdays have been a VERY popular day for turns in 2017, especially for bottoms.

The last time the SPX did not rally in to July opex was in 2011 when it topped on the Thursday before a late employment report after a strong continued rally along / above the upper bollo band. Since 2007, the only other year the market did not rally in to July opex week was 2008.

July Opex

Except for 2009 (major bottom week before) and 2016 (relentless rally) , July opex has had a VERY strong record for turns – many of them MAJOR..

  • MOST, but not all turns have occurred post opex. Since 2007, there are just three exceptions. There was a minor opex Thursday bottom in 2014 and an opex Thursday top in 2012 that resulted in a very powerful 5 day 52pt sell off and the MAJOR bottom below the lower bollo on opex Tuesday in 2008
  • Oddly, in recent years most turns have occurred between the 18th and 20th of July.   The other popular date has been the 24th with MAJOR Bottoms in 2000 and 2001 post opex on that date and the minor top in 2013 occurring on that date as well. This year July 24th is on the Monday post opex, which is by a slight margin the most popular opex period turn time – just something to keep in mind

FOMC (July 25th & 26th – NO press conference) and ECB on July 20th

 Increasingly, the non press conference FOMC meetings are having less and less impact on the market. The only time there seems to be a significant move that is also potentially related to the FOMC meeting is when there is another turning point near the FOMC meeting. This is what occurred with the Nov 16 meeting as employment was two days later and the market MAJOR bottomed on employment day.

The same lessening impact has also been seen with the ECB meetings, though with the ECB on opex Thursday this month, it is possible that there is a greater impact and movement around the ECB meeting, though this is probably due to opex, not the ECB. 

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.

  • 2016 – In a persistently bullish month, the only slight weakness since early in July was seen from Monday, August 1st to Thursday, August 4th.
  • 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 on Friday, August 2nd at 1710
  • 2012 – Double Turn – Market peaked on Monday, July 30th and pulled back to Thursday August 2nd (FOMC week)

 Bigger Picture Historical Points – for awareness

There are a few bigger picture historical points that will provide encouragement to both BULLS and BEARS. Again, these are just historical facts.

FOR THE BULLS:

  • The high for the year has not been in June since before 1950. Right now, the all time high is on Monday, June 19th at 2454
  • The July high is almost always higher than the June high unless the market is very bearish. The last time the June high was not exceeded in July was in 2010.
  • The high for the month of July is RARELY on or near the first trading day of the month. The last time was in 2008 (Wed, July 2nd) and before that was during the 3 years that had significant July sell offs (2004 – July 26th low, 2002 – July 24th low and 2001 – July 24th low)

FOR the BEARS

  • It has been a LONG time since the SPX has traded at its 20 week MA (Cobra has cited something similar to this a fair amount this spring). The 20 week MA is at 2393. It was last touched during the week of November 7th last year. This is by far the longest duration rally without a touch of the 20 week MA since the bull market began in 2009. In fact, it is the longest period since 1995.
  • Also, one must go back to 1995 for the smallest pullback in the first half of the year. Back in 1995, the largest pullback in H1 was 1.7% and in 2017 it was 2.8%. Interestingly, 2015 was another year with just a very small maximum pullback (3.6%) during the first half of the year and the SPX had a very difficult 3rd quarter.
  • There has also only been one year since 1998 that has not had an April – July correction of some significance in terms of either time or price. The minimum duration correction was 14 days (5.2% in 2003). That year was 2014. While the SPX did manage to slightly surpass its early July high on July 24th after a sharp rally from its opex Thursday bottom, the SPX did fall almost 100pts from July 24th to August 8th.

Current Conditions

With a daily RSI of 50 and the very compressed bollo bands, the current technical conditions are very neutral.

  • Only technical note that is interesting is that the market has rallied almost immediately when the MID has gotten an hourly RSI buy signal. The MID has had buy signals on May 31st, June 21st, June 22nd, June 29th and July 6th and all have resulted in decent rallies for the MID.

BOTTOM LINE

The lack of volatility and the very tight ranges – especially the tight ranges within the two wide range days of June 9th and June 29th is extremely unusual. For now, there is very little edge in the market, though there are some things to be aware of:

  • A move lower during this week might set the market up for the usual rally in to opex week that has been occurring every month since October 2016, especially since the market very rarely falls in to July opex week.
  • If the market does move higher in to opex week, then a top late in opex week or more likely on / near Monday, July 24th (pre FOMC) becomes higher probability.
  • Lastly, Thursdays really have been a more frequent than usual turn day during 2017.

Bigger picture, the bears do have some historical support for a move lower. The big question concerns when that move might begin. It could occur in July, but there are other years in the past that have waited for August or September for true market weakness to occur.

For now, the market is great for people who like well defined trading ranges. For most others, it is best to be patient and wait for a real market edge to be revealed.

ENJOY your summer holidays!

-D

 

4th of July, 2017 Preview  (as of close of business on Friday, June 30th):

The period around the 4th of July is one of the potentially more difficult calendar periods in the market year to really understand what is going on, as there is the 4th week of June turn, the normally very bullish 1st trading day of July, the 4th of July holiday and lastly July employment.

  • The key thing to understand about all of these potential turns is that there are not always turns for each of these market events, but generally one of them does produce a MAJOR TURN. The challenge is figuring out which one is the primary major turn.
  • In 2016, it was the MAJOR Turn during the 4th week of June with the Brexit Bottom on Monday, June 27th. After that, the market was basically off and running
  • In 2015, the MAJOR BOTTOM was post the 4th of July and post employment
  • In 2014, there were a series of minor turns
  • In 2013, it was the MAJOR post June opex bottom during the 4th week of June and the market then just ran higher
  • For 2012, there were big 50pt or more swings for most of the turning points
  • For 2011, the summer top was on the Thursday before a late employment report
  • For 2010, THE Summer bottom was on Thursday, July 1st pre employment and pre the 4th of July
  • For 2009, the end of the first significant correction and the summer low was on the Wednesday, post employment and post the 4th of July holiday

Here are the other key points to be aware of:

1st trading day of July

  • Since 1998, on the first trading day of July, the SPX has been up 16 times (largest gain 19pts in 2011 and down 3 times (2010, 2004 and 2002 – largest loss 21pts in 2002). This is an extraordinary track record for any given market day.

4th of July Overall

  • The 4th of July has seen 4 major turns in recent years (2009, 2010, 2011 and 2015) with only the 2010 turn occurring before the holiday. All have been in combination with employment turns
  • Otherwise, the 4th of July has been a series of minor turns since 2007 with 2007, being the only year there was no turn as that year had a MAJOR 4th week of June bottom

4th of July midweek holiday

  • There have been 7 mid week 4th of July holidays since 1998.
  • Only one of them (2007) did not produce either a 50pt rally or a 50pt decline in the SPX
  • Primary turn before the holiday: 5 times 2013, 2012, 2006, 2002, 2001
  • Primary turn after the holiday: Once – 2000
  • No turn: Once – 2007
  1. 2013 (Thursday Holiday) MAJOR BOTTOM – but it would have been a tough one to play. Like in 2011 and 2012, the SPX turned the day before the employment report. In 2013, there was a brief 3 day pullback from Monday, July 1st to Wednesday, July 3rd 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 for the rest of July
  2. 2012 (Wednesday Holiday) 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
  3. 2007 (Wednesday Holiday) No turn – rally continued until July 9th and then there was a minor top
  4. 2006 (Tuesday Holiday) – MAJOR TOP Day before. Rallied sharply from 4th week of June bottom on Wed, June 28th and topped at the close at the upper bollo on the first trading day of July, the 3rd, pre holiday.
  5. 2002 (Thursday Holiday) MAJOR BOTTOM (and a MAJOR TOP!) Market fell hard in to the Wednesday before the holiday. Market was in a STEEP downtrend. Bottomed 14 pts below lower bollo and had a HUGE gap up on employment day the day after the holiday, but peaked on the Monday and fell super hard – DEFINITELY a TURNING POINT!
  6. 2001 (Wednesday Holiday) 2001 – MAJOR TOP – two days before. Had bottomed below the lower bollo on opex day in June and rallied for a few days, then pulled back to a slightly higher low on Tuesday, 26th and topped at 20 day MA after strong rally on The Monday before the holiday, the first trading day of July
  7. 2000 (Tuesday Holiday) – MAJOR Bottom two days after Holiday – Market had topped on Monday post opex, fell till Thursday June 29th at lower bollo and a bit below 40 day MA – had bounced on June 30th and July 3rd and then fell hard on day after holiday and bottomed on Thursday, July 6th (Could also be seen as a MINOR top at the close on Monday, July 3rd and a two trading day pullback)

4th of July after June Opex Tops

There have been 11 tops for June opex. Unfortunately, the July 4th turns have been all over the place with no consistency

  • Pre Holiday Bottoms – 2010 (Thursday pre employment), 2003 (Tuesday before), 2002 (and then a top on Monday post employment)
  • Pre Holiday Tops – 2014 (Employment Thursday), 2012
  • Post Holiday Bottoms – 2015 (Tues post employment too), 2008 (minor bounce post employment), 2000 (post holiday / pre employment)
  • Post Holiday Tops – 2005, 1999 (minor top)
  • No turn – 2007 (rally continuation)

4th of July after 4th week of June bottoms

There have been 14 (potentially 15) 4th week of June bottoms since 1998

  • Tops before the holiday – FOUR 2016 (minor top on Friday before), 2012, 2006, 2001 (Major – 2 days before)
  • Bottoms before – THREE 2013 (MAJOR) , 2010 (Major), 2002 (brief bounce)
  • Tops after: THREE 2011 (MAJOR Thursday after pre employment), 2005 (minor), 1999 (minor)
  • Bottoms after: TWO 2009 (Wed after post employment), 2000 (two days after)
  • None: ONE 2007 (Rally continuation

Holidays in 2016 & 2017

  • Holidays have continued to be consistent turning points. Interestingly, the tops have all been minor since MLK in 2016 except for post Labor Day last September, while the bottoms have all been MAJOR ones (like the one before Good Friday in April)
  • The only recent holiday that did not have a turn was the rally continuation for President’s Day in February

Employment in 2016 & 2017

  • Employment has also been a consistent turning point with February 2017 & July 2016 being the only recent rally continuations.
  • All of the turns in 2017 have been minor (bottoms in March and May and tops in Jan and June)
  • Interestingly and somewhat oddly, all of the employment turns since August 2016 have been pre employment or on employment day. Previously, they were much more consistently post employment.

Current Conditions

  • While the SPX did trade below the lower bollo on this past Thursday, it is fairly neutral technically as the range has been so tight during the month of June.
  • There is no edge when the technicals are so neutral, though the proximity to the lower bollo does suggest at some point in time there should be a bottom and a rally, one does not need to occur.

Bottom Line

All of the above information is meant to demonstrate that there have always been quite a few market twists and turns during the period between the 4th week of June and the 2nd week of July, and the key takeaway should be that at some point, it is likely that the combination of the 4th week of June, July 4th and July employment will produce a major turn. The challenge, as always, is when.

  • The narrow ranges definitely mean there are some caution flags that the bulls need to be aware of. I will cover these next week in my July monthly preview.
  • The low this past Thursday does provide a potential platform for a rally in to next week, especially given the first trading day of July track record

Other than the 1st trading day of July, there is still no clear edge as to when their might be a primary turn occurring. It may have already occurred this past Thursday or it could be post employment during the 2nd week of July. For now, just expect quite a few twists and turns until the market sorts itself out.

As always, all of the above is only the historical perspective… and the market will do what it wants to do. My one concern is that this past Wednesday’s trade really felt like a 1st day of the month trade (and on the charts it looks very similar to the period around March 1st, 2017, which would not be good for the market until post employment)

ENJOY the holiday!

-D

 

QUAD Opex FOMC preview & review for June 2017  (Preview as of 1pm on opex Tuesday, June 13th, 2017)

(Review as of late in the day on the Monday, post opex on June 19th, 2017)

This preview / review will be in two parts. The first one is really a reminder on the Quad Opex / FOMC tendencies and also a review in general of June opex. The current market heading in to June opex has quite a split personality with the NDX being somewhat weak in the short term and the MID and RUT being strong with the SPX being in the middle. Overall, looking at the BIG picture, all of the indices are still very strong.

OPEX REVIEW     (as of late in the day on the Monday, post opex on June 19th, 2017)

The FOMC meeting did not produce that much market action, but did seem to enable the small 25pt pullback from Tuesday’s highs to Thursday’s lows.   In terms of the opex week, there are a few points I noted on Friday evening that seemed right to review:

  • Another Inside week for opex week – just like in April 2017 – Now there have been 9 inside weeks for opex week since 2007
  • Tuesday high and a Thursday low – these are not that common. Though, right now it is like waiting for a bus, as this is the second month in a row that there has been a Tuesday high and a Thursday low. This is now the 11th instance since 1998 (out of 234 weeks)
  • Monthly VIX expiry – does it have an impact? I am not a VIX expert by any means, but the VIX expiry may have an impact on the market – just something to consider
  • Post June opex turns – there have been a few tops in recent years, so something to be aware of

INSIDE Week for Opex week:

  • The general evidence is that when the SPX has an inside week during opex week, the appropriate short term post opex strategy is to fade the break of the inside week, but one must be careful and judge the conditions. Some times it means fading the break on the same day, on others, it has meant waiting at least two days.
  • In April 2017, this strategy did not yield much for the SPX as the break of the inside week range was a powerful 3 day breakout and while the pullback lasted a week, the pullback was minimal in terms of SPX points.
  • In January 2017, the slight new low on the Monday post opex was faded almost and produced a good market rally almost immediately, while in October 2016, the range break higher was faded and the market had its final move in to the early November lows
  • There has only been one Quad opex week that has been an inside week, it was in June 2007. It was a double inside week and the market broke the inside week lows at the end of June and then headed higher again.

This study would suggest the new highs in the SPX will be sustained for only a day or two before the market pulls back.

TUESDAY High and Thursday lows for opex week

  • Tuesday highs for opex week occur about 15% of the time. While they have now occurred two months in a row, the last opex week prior to May 2017 that had a Tuesday high was August 2015.
  • A Tuesday opex week high is usually paired with an opex Friday low, but obviously this has not happened in either May 2017 or this past opex week
  • There have been 10 instances since 1998 of Tuesday opex week highs and Thursday opex week lows. 6 times the market rallied sharply off of the Thursday lows – though, unlike this past week, most of those lows occurred when the market hit the lower daily bollo (like in May 2017) or a key moving average (the 200 day MA in June 2011)
  • Three times the market had a post opex bottom and the last instance that can not really be categorized was the super volatile period of Oct 2008.
  • Given the Monday post opex rally, it should be noted that there was one powerful continued rally in August 1999 that had 4 powerful up days before the market topped on the Wednesday post August opex above the upper bollo band and reversed back below the opex week lows.

This study would suggest that the market should continue higher

MONTHLY Vix expiry – post opex this month

It has been some time since I have seen an article about the Wednesday expiry of VIX options, but I have been quietly tracking the expiry for some time and it does appear to have some potential impact lately. The VIX Options expire on the 3rd Wednesday of every month. Some times that is during opex week, some times it is post opex. For some reason, right near the VIX option expiry there have been some significant market moves. It seems as though if the market is somewhat OB, the move is lower and if it is OS then the move is higher

  • May 2017 (Expiry during opex week – market OB) – Sharp drop on Opex Wednesday – SPX down 44 pts
  • April 2017 (Expiry during opex week – market OS) – Gap higher on Opex Thursday and a sharp move higher until Wednesday post opex
  • March 2017 (Expiry post opex week – Market slightly OB) – Sharp move lower on Tuesday post opex. SPX down 29ptsThere is not enough data to support any solid conclusions in the short term, but I did pull together the following stats for VIX option Expiry post opex week since 2010:
  • MAJOR TOPS – 9   (most recently in Sept 2017 on the day after FOMC and Vix expiry)
  • MAJOR Post Opex Bottoms – 7   (Most recently January 2016)
  • Acceleration higher after an opex bottom – 4 (Most recently Jan 15)
  • No Impact – 9 instances – most recently the listless range experienced in Dec 2016 and July 2016

Bottom Line – Vix option expiry may have no impact, but ione must be aware of the possibility of a potential sell off like what was seen in March, the last time the VIX options expired post opex.

JUNE OPEX was the primary turn on Opex Thursday or will it be post Opex?

I have no idea. In June 2016, the SPX made an opex Thursday bottom and then rallied sharply for a week until the Brexit vote.

Since 2007, the SPX has had 4 post June opex tops. All 4 had lows earlier in opex week

  • 2015 –(Opex Monday low) 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
  • 2014: (Opex Monday low) 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
  • 2012 (Opex Tuesday low) 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
  • 2010: (Opex Monday low) Against the trend, rallied all week and then MAJOR topped on the Monday after and fell to its MAJOR Low in early July
  • The market continues to be extremely strong. The dips that seem to be shorter and shorter in duration continue to be bought aggressively. The persistent bull is alive and well and must continue to be respected. From a purely historical point of view, there is no clear evidence for what the market might do next:
  • Bottom Line:
  • The inside range week for opex week argues for caution regarding the breakout to new all time highs on the Monday post opex
  • The Tuesday high and Thursday low for opex week suggests the market has bottomed and should continue to rally (as last seen in May 2017 – though the market was more OS then)
  • The VIX Option expiry could cause a short term selling event between Tuesday and Thursday (like was last seen in March 2017)
  • June opex does have a history of producing post opex tops – but none of those tops had an opex Thursday low

Overall, from the perspective of history, there are a few potential caution flags, but in 2017 almost all of the caution flags have meant nothing or just a few days of weakness. Given that the month of June has not seen a market high for the year since some time before 1950, it is likely that any pullback will be bought and the market will rally to new highs in July. This is what occurred in 2014 and this is the year that 2017 most closely resembles so far.

One last point to remember for next week, there has been a LOT of turn activity during the 4th week of June, which is next week. There have been 15 turns during the 4th week of June. Some of them, like the post Brexit bottom in June 2016 have been quite significant. If relevant, I will post more next week on this point.

All of the above is a fair amount of info, but I am afraid not that much that is really actionable. Some times that is the way the markets work with my research.

-D

OPEX Preview   (Preview as of 1pm on opex Tuesday, June 13th, 2017)

While the market did have its primary turn in December 2016 on opex Tuesday pre FOMC (a minor top), the primary turns for Quad opex weeks with an FOMC meeting are almost always POST FOMC. In March 2017, the turn was on Opex Wednesday post Yellen’s press conference near the close after the rate hike.

I have not seen much historical analysis of Friday’s outside day with a 6 trading day high and low. The Gap Guy said that such an occurrence had happened 20 plus times in the last 20 years. I do not remember such a day – certainly not on the Friday before opex week. There has not been a high like this past Friday’s before June opex since at least 1998. The only recent memorable Friday before opex week high was in September 2012 when the market was very OB and topped the day after QE3 was launched (The FOMC meeting was the week before opex). The market did not do much during opex week and then fell in to a Wednesday post opex minor bottom.

Per my previous reports, the SPX has rallied in to opex week every month since Oct 2016 and with the rally from Friday’s low, it also has occurred this month, especially with Tuesday’s rally. Unfortunately, as the SPX is still within Friday’s range, there really is no edge with respect to this rally from Friday’s lows.

JUNE Opex Overall

  • MAJOR turns in almost every year – 2007 (opex day top), 2008 (Tues top), 2010 (Mon after Top) and 2011 (Thurs Bottom), 2012 (Tues after / pre FOMC Top), 2013 (Monday after Bottom), 2015 (Monday after Top) and 2016 (Post FOMC Opex Thursday bottom)
  • 2009 there was a decent Tuesday after bounce for 8 days and 41 pts
  • One other June opex quirk to remember – the SPX 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 5 years (2006 – low, 2009 – bounce, 2011 – low, 2013 – low and 2015 1 week bounce) 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 post opex for potential turns. There was not one in 2016, but the Thursday post opex turn was certainly a BIG one thanks to the Brexit response

QUAD Opex WEEK

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. In 2016, there were two major turns (June and Sept bottoms) and in March 2017, there was a MAJOR top on opex Wednesday post the FOMC

June Opex / FOMC

The last four years have been the only 4 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 3 years between 2013 and 2015 all saw primary turns post opex. Two of the years (2013 and 2015) saw Double Turns while 2014 just saw a minor top post opex.

Given the rate hike expectations, here is what has occurred after the previous rate hikes:

  • March 2017 – Market had rallied in to opex week and continued to rally until near the close on Opex Wednesday / FOMC day. The market then proceeded to pullback 78pts in 12 days. The big day for the move lower was the Tuesday post opex.
  • Dec 2016 – Had topped on the Tuesday before the FOMC meeting and bottomed after a 30pt drop at about 3:15pm on Fed day. (SPX was down 18pts on Fed Day)
  • Dec 2015 – Sold off in to opex week. Bottomed on opex Monday and rallied in to Opex Thursday’s open post the press conference and announcement and then sold off sharply till Friday’s close

For now, the only tendency one can continue to expect is a post FOMC announcement turn.

Current Conditions

The SPX is trapped within Friday’s range. There have been no interesting technical signals with respect to the SPX / SPY.

The MID did generate an hourly sell signal both on Friday and also today opex Tuesday.

  • While this particular Friday signal did make money, hourly sell signals on the Friday before opex week, generally signal that one should not be short in to opex week, but that there might be a top for at least a pullback some time between Tuesday and Thursday of opex week
  • There has not been an opex Tuesday RSI sell signal in the MID since Sept 2015. That opex week the SPX topped post the Thursday FOMC meeting in some wild price action

Bottom Line

Last Friday’s wide range day (compared to recent ranges) was rare and unusual. While the rally from last Friday’s lows is fairly standard (these days) for opex week as they have been occurring every opex week since October 2016. For now, there is no real edge in the market.

  • Almost all of the primary turns Quad opex / FOMC turns occur post the FOMC meeting with many of them occurring post opex, though more recently the Quad opex turns have all been during opex week (June 16 – Opex Thursday, Sept 16 – Opex Monday, Dec 16 – Opex Tuesday and March 17 – Opex Wednesday)
  • The current conditions in the SPX are neutral. The hourly sell signals in the MID do not provide any real edge.

For now, it is best to be patient and wait for the market to reveal its intentions post the FOMC tomorrow.

I will be back later in the week when there appears to be more potentially relevant information to provide.

-D

June Opex Detail

    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
    10. 2016 – MAJOR Bottom on Opex Thursday post FOMC and a 1 week rally until the Brexit result caused a sharp market sell off.

June 2017 Turning Point and Employment Preview (as of late in the day on Thursday, June 1st, 2017)

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

This most recent month of May with its very narrow upward sloping trading range that ended with the sharp drop on Opex Wednesday in to the opex Thursday bottom was slightly unusual relative to most normal months of May with one exception – the opex Thursday MAJOR bottom which has now been seen in 3 of the last 4 years (2014, 2016 & 2017)

With today’s new high, the primary question for the SPX is whether it follows the upward sloping path that the SPX travelled in 2014 between roughly the 20 day MA and the upper bollo band that ended post July opex or is it more in line with 2007, 2009 and 2016 when the market rallied in to post employment tops and pulled back during the month of June.  The bulls are clearly in control, but other than 2014, the SPX has always had a multi week pause and pullback during Q2, so there are clearly two potential analogs for the market based on the trading history of the month of June since 1998.

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
  • The May opex bottom is an interesting one as in 4 of the last 5 years that there has been a May opex bottom, there has been weakness in the SPX BELOW the April and May lows during the month of June. Those years were 2016 (June 27th low, 2012 (June 4th low), 2011 (June 16th low) and 2010 (July 1st low). The one exception is 2014 when the market had a steady rally until post July opex

June Employment

Overall, June employment is a very consistent month for turns with the Thursday before employment and the Tuesday after employment being the most consistent days for June employment inspired turns.

In 2016, the SPX had a MAJOR top on the Wednesday post employment and fell 69pts till opex Thursday. In 2015, the SPX had a minor bottom on the Tuesday after employment and in 2014, the SPX had a minor top on the Monday after employment

The only pre employment top in the month of June was during 2008 on the Thursday before. Otherwise, all of the June employment tops since 2007 have occurred post the report and only 2007’s occurred on employment day.  (11 tops and 7 bottoms since 1998)

In 2017, the last 3 employment reports (May – bottom on Wednesday before, April – top on Wednesday before and March – bottom on Thursday before) have all turned prior to the employment report. This is quite unusual.

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.   There have been only 3 years since 1998 that did not see turns in the 2nd week of June. In each of those years (2011, 2006 & 2005), the market trended until reversing during the opex period.

In 2016, the MAJOR employment top on Wednesday, June 8th was the turn in the 2nd week of June

One must also remember the market’s tendency to rally in to opex week. It has occurred every opex week since October 2016.  (though the market did fall in to the opex week in June 2016)

June Opex  / FOMC

The last the last four years have been the only 4 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 3 years between 2013 and 2015 all saw primary turns post opex. Two of the years (2013 and 2015) saw Double Turns while 2014 just saw a minor top post opex.

In 2016, the market MAJOR bottomed on Opex Thursday, the day after the FOMC meeting and rallied 53pts in a week before the BREXIT inspired fall.  In March 2017, the SPX topped on opex Wednesday, post the press conference and fell 68pts in 12 days.

For now, the only tendency one can continue to expect is a post FOMC press conference 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 15 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.

The BREXIT driven bottom on Monday, June 27th was one of the more significant bottoms that the 4th week of June has seen since 1998. 

Current Conditions

On a monthly basis, the SPX is monthly OB with an MFI(14) of 75. Monthly OB is not that helpful in predicting market tops, BUT it should be noted that the last the last 3 times the SPX hit monthly OB (Aug 2014, Dec 2013 and April 2010), it experienced market weakness and pullbacks that lasted until either two months later (Oct 2014 and Feb 2014) or 3 months (July 2011)

On a weekly basis, the SPX RSI of 71 is elevated and technically divergent, but weekly divergences can last for some time.

On a daily basis, the SPX has had a very strong run since the May Opex Thursday bottom. There is not a lot else to say. There is a clear breakout above the recent range, though this is what also occurred on the first trading day of March this year.

With the extremely strong rally since Wednesday morning in the MID and the RUT both have moved from an hourly buy signal yesterday to an hourly sell signal today. I have no record of this occurring before.

BOTTOM LINE

The tight ranges and low volatility for the SPX  are historically unusual for the SPX.  As I have noted before since 1998, the SPX has regularly had corrections / pullbacks in Q2 that have lasted a number of weeks On average, these corrections have lasted 36 days and the market has corrected / pulled back 8.1%. The only recent year that did not have one was 2014 and that year there was a 6% correction in Q1.

2007 (Friday, June 1st) and 2009 (Tuesday, June 9th) were the two years that had corrections starting in June. The recent corrections that started in May were in 2011, 2012, 2013 & 2015)

Now that the market has made a new high in June, there are three scenarios with the associated analogs to consider:

  • 2016 (May opex Thursday bottom): Market continues higher in to the 2nd week of June and then pulls back and starts a multi week correction.
  • 2014 (May opex Thursday bottom) – Market continues generally higher in June with a number of pullbacks and rallies – does not really change trend until July opex or later
  • 2017 – more of the same – The market stays in a tight range with just a few sudden drops that are bought after becoming hourly oversold either on the day (like Wednesday, May 31st) or the next day (like on Thursday, May18th)

With respect to employment, at this stage a top and pullback post employment – possibly for just a few days is the most likely scenario. Though it is possible that the small dip between May 25th and May 31st, which was much greater in other indices actually created a pre employment bottom like was seen in May and March. (note the April – May pullback was just slightly larger in size and duration – the market’s next pullback was then for two days from the Tuesday post employment to the Thursday)

For now, it continues to be a challenging market for those that like volatility and proper clean tops and more extending sell offs in the SPX.     For those interested in indices that are moving a bit more the MID and RUT seem to be the best places to focus. They have certainly moved a lot more in the past few weeks – both higher and lower.

Lets hope it is an interesting a month of June as it was in 2016.

-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 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:
    • 2016 – The Brexit inspired sell off and then rally made June 2016 a slightly different year as the low was in late June, not early July as normal.
    • 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

  • 2016 – 4 MAJOR turns thanks to Brexit. Topped on the Wednesday (8th) post employment (2nd week of June), bottomed on Opex Thursday (day after FOMC), topped at the close on Thursday, June 23rd prior to the Brexit vote and had a MAJOR Significant bottom on Monday, June 27th after the sharp 2 day Brexit driven sell off
  • 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 low

The month of June has TWICE had big slides:  2002 & 2008   Though given how it traded, the 3 wave move from Wednesday, June 8th to the low on Monday, June 27th could also be counted as a third big slide

It has had steady to strong rallies – THREE times – 1998, 2012 & 2014

 

May Opex Review, Memorial Day Preview and Q2 Corrections – 2017 (as of early in the day on Wednesday post opex, May 24th, 2017 )

For the third time in 4 years, the market has bottomed on May opex Thursday and rallied. The other two rallies in 2014 and 2016 did not terminate until post employment in June.

  • In 2016, the market had corrected for 29 days before making the opex Thursday bottom and rallying.
  • In 2014, the one year since the bull market began that the market was persistent throughout Q2, the market had a brief opex Tuesday to opex Thursday pullback and then powered to new highs. Interestingly, back in 2014, the SPY had a battle just below 1900 before it exploded higher post May opex to its next battle with resistance between 1980 and 1990

The persistent bullishness is definitely back and the rapid recovery of last Wednesday’s losses will definitely reinforce the market’s “Buy the Dip” psychology.   I can not argue against the BTD impulse as it definitely works.

With respect to this May opex period, it was and still is an unusual one, as Tuesday highs and then the sharp reaction to Thursday lows are rare – though as I noted last week, it did happen in May 2014 as well. The immediate V shaped rally without even a down day or a test of the low is more unusual for a May opex period bottom, though it is definitely a characteristic that has been seen during the V bottoms in the market’s persistently bullish periods like the market is experiencing now.

There are a few other comments about the May opex period below that may be of interest.

MEMORIAL DAY Holiday is the next Turning Point- Per my May Turning Point Preview, it used to be very good for countertrend trading turns, but it has never been the top or bottom for a move.   Holidays have still been consistent turning points, but less so during persistently bullish periods.

  • For now, it is best to be aware of the tendency to turn post the Memorial Day holiday for a trading turn, but also remember that there was no turn in 2014 when the market had an opex Thursday bottom and there was only a one day pullback post the holiday in 2016.
  • If the market continues to rally in to next Tuesday, it is possible that it will experience a short term 1 to 2 day pullback. I would not expect a MAJOR top.

One other point to note that is relevant to next week is that the market’s trend direction from this current week in May tends to persist until at least the 2nd week of June. It is not always the case, but the primary exceptions were really only in 2010, 2011 and 2012 when the market was bearishly inclined and made post opex bottoms, post Memorial Day tops and then fell in to June. (more info below)

The LAST point and the one that the more bearishly inclined will be happy to read about is that UNLESS the SPX is repeating Q2 2014 (which is possible, though it has yet to even have the 4% plus correction that occurred in April 2014, then some time in the next few weeks, the market should have a more significant top and a 4% plus pullback that should last a few weeks. (see below for more details)

  • It is also important to note that the market’s Q2 top occurred on the Wednesday post opex in both 2013 and 2015.

Current Conditions:

The short term market conditions are reasonably neutral. The market has had four consecutive days of gains as it has recovered from Wednesday’s sharp move lower. The market had a similar recovery in late March after the sharp fall on March 21st, though it took slightly longer for the market to recover. The market then stalled before making a slightly higher high and then it re-tested the low:

  • On a daily basis: The SPX is neutral with a daily RSI (9) of 59. It should be noted that last week the IWM and MDY were daily MFI OS, but are no longer given the bounce.
  • On a weekly basis: The SPX is slightly extended with an RSI(9) of 68, but more interestingly, it has not touched its 20 week MA since November. This is now the longest period since the bull market began in 2009 that the SPX has not touched its 20 week MA now residing at 2350. The previous longest period was Nov 2012 to May 2013. The SPX then corrected 7.9% in 33 days
  • On a monthly basis, the market is OB with an RSI (9) of 77 and an MFI 14 of 74. Monthly strength can last for many months, so this is not a topping indicator

Bottom Line

What I wrote last Tuesday (while quite accurate – though not really prophetic) still applies:

  • “Overall, I dislike constantly cautioning about potential tops. We are back to being in a persistently bullish period. With the super tight ranges, the bulls are in control and there is really no edge from the perspective of my work, so I am going to remain fairly quite in my commentary…..”
  • Of course, the market then dropped sharply…. And bottomed almost as quickly.

There really are two opposing points here:

  • The consistency of the Q2 tops and pullbacks is something that has occurred in almost every year since 1998 with 2014 really being the only exception and in 2014 there was a 6% pullback in January and a sharp 4.4% pullback in April. Also, the length of time since the SPX touched its 20 week MA supports a correction.
  • If a TOP did not occur last Tuesday (and this rally is just a re-test) or does not occur very soon, then it is likely that the market will rally in to June and probably top post June employment.
  • 2014 is the one analog that supports a continued rally in to Q3 and then would suggest that Q3 and early Q4 would be a more difficult period for the market.   The SPX has had a real battle with 2400 just like it did in 2014 with 1900.

I wish I could point to a real historical edge right now, but there simply is not one.   The bulls definitely have the support of the market’s persistent bullishness, while the bears do have the historical tendency for the market to correct in Q2 and the extended period that the SPX has not touched its 20 week MA.

Sadly, for now, I am once again decidedly neutral.

ENJOY the holiday weekend!

-D

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 18pt SPX 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)
  • 2014: There was no turn.
  • Between 2008 and 2013: there was a turn after the holiday in every year.

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: There was a MAJOR Bottom before Good Friday in April 2017
  • President’s Day: Somewhat surprisingly the rally continued post opex and post President’s Day in February
  • MLK 2017: There was a minor 6 day top that started the Friday before MLK in January
  • New Year’s: There was a MAJOR bottom on the day before the New Year’s holiday
  • Christmas: There was a minor top 1 day after Christmas
  • Thanksgiving: There was a minor top 1 day after Thanksgiving

LATE MAY in to June Direction

One interesting point to remember is that the market move from mid to late May tends to persist in to at least the 2nd week of June. This is not always the case, but it is frequent enough to be notable.

  • Rallies in to June – 8 times     (2016: May 19th to June 8th and 2014: May 15th to June 9th are recent examples)
  • Falls in to June – 5 times   (2015: May 20th to June 9th and 2013: May 22nd to June 6th are recent examples)
  • Rallies till post Memorial Day and then falls in to June – 3 times   (2012, 2011 and 2010)
  • Two exceptions – 2007 was a rally till June 1st and then a correction and 1998 was just a messy trading range

 

MAY Opex Week Review

Tuesday tops and Thursday bottoms:

A Tuesday high for opex week does not occur that often. In most instances a Tuesday high is during bearish market periods. December 2016 with a Tuesday high and Wednesday low and May 2014 – a bullish period, also with a Thursday bottom are the most recent exceptions.

  • Overall, Tuesday has only been the high for opex week 35 times since 1998. (15% of the time)
  • When the market makes a Tuesday high then opex Friday is by far the most likely day for an opex week low (21 times) followed by Thursday
  • Interestingly, when the opex period has been a bottom – 4 times (May 2014, June 2011, Jan 2011 and Dec 2011) the Thursday has marked the bottom and 4 times, there has been a post opex bottom.
  • The weekly range of 52 pts was the widest the SPX has seen since Feb 2016.
  • Prior to this past opex week, this 50plus point weekly range indicated there would be a bottom post opex.
  • Lastly, there is ONE instance where the market had a Tuesday high and a Thursday low and then a MAJOR post opex top – this occurred in August 1999 when the market had a small Tuesday to Thursday pullback and then powered higher in to a Wednesday post opex top that ended up lasting for two plus months. This is an outlier, but something to remember.

While I did not expect the strength or speed of the recovery from last Thursday’s lows, I also did not quite expect the market to make a MAJOR Top last Tuesday given that it so rarely happens early in opex week and almost always happens during bear markets. Here is the data on MAJOR Opex Tops:

There have been 58 MAJOR Opex Tops since 1998 out of 233 opex weeks (about 25%). A MAJOR top is defined as a top and a correction of at least 50pts from Opex Monday to the Wednesday post opex.

Here is when the MAJOR Tops have occurred:

  • Opex Monday 4 times   (Most recently Aug 2008)
  • Opex Tuesday 4 times   (Most recently Oct 2008)
  • Opex Wednesday 10 times (Most recently March 2017)
  • Opex Thursday 6 times   (Most recently Sept 2015)
  • Opex Friday   7 times (Most recently Sept 2014)
  • Monday Post Opex:   11 times (Most recently Oct 2016)
  • Tuesday Post Opex 7 times (most recently Jan 2014)
  • Wednesday Post Opex 9 times (Most recently Apr 2016)

Q2 CORRECTIONS with Clear Q2 tops and pullbacks

Since 1998, the SPX has regularly had corrections / pullbacks in Q2 that have lasted a number of weeks On average, these corrections have lasted 36 days and the market has corrected / pulled back 8.1%. The only recent year that did not have one was 2014 and that year there was a 6% correction in Q1.

In terms of duration:

  • The longest correction occurred in 2010 when the SPX corrected 17.1% in 66 days from April 26th to July 1st
  • The shortest correction was at the start of the 2003 bull market when the SPX corrected 5.2% from June 17th to July 1st – just 14 days.
  • There was also a 14 day 7.2% correction in 1999.
  • In 2016, the correction lasted 29 days from April 20th post April opex to May 19th – opex Thursday. The correction was only 4%

In terms of the size of the pullbacks

  • The largest was the 17.1% correction in 2010
  • The smallest was the 4.0% correction in 2016 followed closely by the 4.3% correction in 2015

In terms of the start date for these corrections:

  • Before 15-April:     ONE         2004
  • Between 15-April and 30-April:   THREE     1998, 2010 & 2016
  • Between May 1st and May 15th :       FOUR    1999, 2006, 2011, 2012
  • Between May 15th and May 31st   :   FOUR               2001, 2008, 2013 and 2015 (All post May opex)
  • June –   THREE     2003 (17th) and 2007 (1st) and 2009 (9th)

There have been 4 years without noticeable Q2 tops that then had noticeable corrections:

  • 2014 – market had a sharp 7 day 4.4% correction during the 2nd week of April, but then did not start another noticeable correction until late July
  • 2005 – SPX corrected 7.6% from March 7th to April 20th
  • 2002 – Correction was much longer and more extensive with a top on March 19th and bottom after a 33.9% drop on July 24th
  • 2000 Market experience a MAJOR BOTTOM in April. The correction was from March 24th to Apr 14th (9.4%) – the market then stayed volatile within that range

 

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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