PUG Stock Market Analysis, LLC

Elliott Wave Technical Analysis and Commentary on the Stock Market

Denali’s Turning Points 2017

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

 

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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