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Denali’s Turning Points 2018

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.

Post February 2018 Opex / President’s Weekend Holiday Review (as of pre market on Tuesday, 20-Feb-18)

WHAT an opex week!

Definitely a record breaker as it was the largest SPX point rise during an opex week (probably ever), but the most since 1998 for certain. The previous largest point rise was 78pts in April 2000. Interestingly, the April 2000 analog was one of two that I referenced in my Feb opex preview.

As the year progresses, I will be converting all of my data to %’s as the point moves that I have been using still seemed appropriate even when the SPX was at 2000…. But at 2700 a 25pt move is no longer what it used to be.

On a % basis, last week’s 4.4% rally was the 9th biggest opex week rally since 1998

  1. October 1998 – 75pts, 7.6%   and a minor 28pt pullback on The Tuesday post opex (this was the emerging markets crisis and the market had bottomed on the Thursday before opex week

 

  1. July 2009 – 69pts of 7% – the first real correction of the bull market had ended the Wednesday before and the market was off and running after that
  2. March 2003 67pts or 6.6% – the low of the BEAR market was the Wednesday before opex week. The market did top on opex day and pulled back for 10 days to test the opex week lows, but the BOTTOM was in and the bull market had begun
  3. April 2000 78pts of 5.7%   – The opposite of March 2003 – the TOP was IN, but the Friday before opex week low held until October 2000. The SPX did MAJOR top on the Wednesday post opex and pulled back until May 10th – the 14 day pullback was substantial but only tested the opex week lows
  4. May 2002 – 52 pts or 4.9% – This was a super strong bear market rally opex week. The market topped on opex day and fell relentlessly in to June
  5. Mar 2000 – 68 pts or 4.9% – this was the last seemingly unstoppable rise of the bull market. The market had tested the 200 day MA on Opex Wednesday and then blasted higher for 9 days before topping for a VERY long time…
  6. Sept 2011 – 56pts or 4.8% – This was a super strong bear market rally for opex week. The market topped on the Tuesday post opex and then fell in to its final 2011 bottom in early October – BUT it should be noted that the market fell 107pts from the Tuesday post opex till the Thursday post opex and then bounced before falling in to the early October lows
  7. April 2001 – 57pts or 4.8% – The spring low was in, but the market was still well below the 200 day MA. The market pulled back for a week and 46pts of the rally, but then continued higher until May opex when it got near the 200 day MA before reversing lower again
  8. Feb 2018 – 116pts or 4.4%     ???  Post President’s Day Turns
  9. I will mention one other rally – number 11 on this list which was in November 2015 – 68pts or 3.3% as it is during the current bull market. The market had actually bottomed on opex Monday at the lower bollo band. While there was a minor two day pullback post opex, the next decisive top was on Wednesday, Dec 2nd – the market then fell eventually in to those Feb 2016 lows.
  • There are two potential holidays that are post opex – President’s Day and MLK day. The MLK holiday has an extremely good record for post opex turns – the President’s Day holiday less so due to the choppy, but generally bullish seasonality leading in to March 1st – generally a very bullish day (or certainly a day NOT to be short!)
  • There have been 10 President’s Day holidays post opex since 1998. Twice there have been no turns (2017 and 2006). Otherwise, there have been 5 turns that have been post opex that are not particularly notable and 3 turns that one should be aware of:
    1. Feb 2002 – MAJOR BOTTOM – 2 days after and then a powerful rally in to March opex
    2. Feb 2007 – The market had had a solid advance since early January – it peaked on the Thursday post opex and post holiday and then encountered the Asia turbulence and fell sharply on Feb 27th – the final bottom was during March opex week
    3. Feb 2011 – Like 2007 a solid, even strong, advance from the late November lows. Peaked on Opex Friday and fell again due to issues in Asia – first bounce occurred on Thursday, Feb 24th – final low was on Opex Wednesday in March. (This was also the Japan Tsunami year)
  • Only one of those 8 turns was before opex in 2011.   The MLK holiday has a similar record with almost all the turns occurring post holiday.

LATE Feb and early March keys

  • The Thursday post opex is an important day to watch as it has been a day for bounces / rallies in 2009, 2010, 2011, 2012, 2013, 2014, 2016 and 2017 – I have NO IDEA why, but each day has seen a bounce or a rally on that day.
  • BUT, it should also be noted that the last day of Feb is quite often a weak day. (14 of the last 19 years) – In 2017, it was just a slight stall. In 2016, there was pronounced weakness on the 26th and 29th. In both years, the market exploded higher on March 1st. (In 2017 it was the March top and in 2016, the market continued higher through the Friday, the 4th)
  • FIRST DAY of March – The 1st trading day of March has seen a tremendous number of rallies – I would certainly not be short on the 1st trading day. The last three years have all seen strong rallies on the 1st trading day. 2014 was the only recent day that the market was really down on the 1st, but even then, the SPX bottomed that day and had a strong rally on the 2nd.

CURRENT Conditions

  • Monthly – Working on a real hammer candlestick. Still OB with the monthly RSI at 77 and the MFI at 88. The market is due a rest on a monthly basis.
  • Weekly – Technical conditions are now neutral. BUT opex week was an inside week!   Normally, the best strategy for an inside opex week is to FADE the break of the range, but it may take a few days for the strategy to work. Technicals are neutral
  • Daily – Market rallied for a week to the 20 day MA which is fairly standard for bear and bull market rallies when the market gets OS. On a daily basis the market could go either way as the technicals are now neutral
  • Short term – The market has pulled back a lot since Friday’s high. It is rare to have a pre holiday top, but this is what has occurred so far – NO EDGE – as the overheated conditions from the rally from last Wednesday’s open have now calmed down. (still that was SOME RALLY off of that brief CPI led collapse!)

Bottom Line

The market rally was in line with BOTH the characteristics of Feb opex week (almost always positive) and rallies out of oversold conditions that we have seen in both BULL and BEAR markets. I must admit the rally was stronger than I expected, but in line with what I predicted was likely to happen in my Feb opex preview (116 SPX points – WOW since the largest previous rally was 54pts in 2016!)

  • From here, given the usual bounces on the Thursday post opex, as well as the tendency for late Feb weakness (28th or 27th& 28th) and strength on March 1st (also pre employment), I would expect the market to be choppy and searching for direction until post the March employment report.
  • I would then not be surprised if the November 2015 / December 2016 analog did not take over and the market headed lower – this is what history would suggest.

For the bulls:

  • The persistent bull may have returned – if so, it was just a scary 14 day correction – just like the 13 day one last August.
  • The seasonality for this period through March 1st does show some bullish tendencies

For the bears:

  • As long as the persistent bull is NOT BACK, then the market has had its bear market rally and while there should be bounces and short covering, the market could now be weak in to March opex like it was in 2007 and 2011.
  • Or it is possible that the market needs to wait until it is through the Powell testimonies and the March employment report before it heads lower.

Overall, history would suggest the market needs to digest its gains and at least pull back to either the 2640 or even 2600 area (to test the opex week lows or the lows from the 9th), BUT I am also VERY respectful and wary of the persistent bull and it is always possible that the 14 day correction was just a pause….   (NOTE: pre 2017 – I would not have been so wary…)

For now, I am impressed by last week and watching to see what happens.

Lastly, just a reminder that Powell is speaking on the 28th & 1st and the market will no doubt be eager to hear from him.

ENJOY the holiday shortened week!

-D

 

February 2018 Opex and Holiday Turning Point Preview (as of close of business on Opex Monday, February 12th, 2018)

This is my 3rd attempt at writing a useful piece of historical perspective on the market in the past 12 days. I must admit that – like more than a few people – the persistence and relentless of the market got me tired of expecting turns – while I did think back in December that the persistent bull would pause and pullback either post January or February opex, the relentless of the January advance got me to drop that thought…

I have to laugh at myself as I wrote on 31-Jan (FOMC Day)

 “The bottom line for me is that with the “current normal”, which will one day change, there is just not a lot of edge in the markets – which is a bit frustrating for statistically oriented commentators like myself and Cobra – but it is the reality of the situation. “

Of course, the market had already topped out and was about to start its dramatic fall two days later – Yes, I have to laugh at myself….

FEBRUARY Perspective

During the bull market since March 2009, February has always been a reasonably strong to a very strong month with the bulk of most of the rallies occurring during the second week of the month and opex week. The one exception was the 2016 significant bottom on Thursday, Feb 11th – otherwise all of the February bottoms have been pre employment (2010, 2014 and 2015) or the market has just had rally continuations.

This makes February 2018 harder to predict – is it following the February 2016 pattern or doing something completely different to the recent months of February.

The key features for the rest of the month are as follows:

  • February opex week has only seen one week of substantive declines since 2002 which was 2009. Otherwise it has been a week that has been flat to up (up 1% or more 8 times, up .7% twice, +/- .3% 5 times and down 6.9% once!)
  • President’s Day holiday post opex – Post opex holidays have had a tendency to have turns, but there has only been one significant one in recent February’s which was the MAJOR top on opex Friday, pre holiday in 2011 (the market was very OB) –
  • The end of the month of February has always been interesting as there have been turns some time after the 24th in 15 of the last 20 years – the most significant recent one was the bottom on the Wednesday post opex, Feb 24th, in 2016. Additionally, there is almost always some late month (27th or 28th) weakness (14 of the last 20 years) and then some strong rallies on the 1st trading day of March (it was a gap and go up and then PEAK for the month on Wednesday, March 1st in 2017)

The END of PERSISTENT Periods

For some time, I have referred to the market as a persistent bull. There have been 11 persistent bull periods since 1998 (defined as 3 months without a touch of the 20 week MA and no daily OS periods) with 8 of those periods occurring since March 2009:

  1. Aug 17 to Jan 18   158 days and 18%   (SPY price change) then corrected till ???
  2. Nov 16 to Aug 17 – 277 days and 19.5%   corrected for 13 days till post Aug opex
  3. Oct 13 to Jan 14 – 98 days and 12.4% – Corrected till early February
  4. Nov 12 to May 13 – 187 days and 25.5% – Corrected till post June opex
  5. Dec 11 to Apr 12 – 105 days and 18.5%   Corrected till post June employment
  6. Aug 10 to Feb 11th – 177 days and 29.1% – Corrected till March opex
  7. Feb 10 to Apr 10 80 days and 16.8% – Corrected till July 1st
  8. Jul 09 to Jan 10 187 days and 32.3% – Corrected till Feb employment

Prior to last August’s short (13 day correction), the shortest correction since 2009 was 19 days and 6 % (Post Jan 14 opex to early the early February 14 bottom) with the average correction lasting 33 days and 8.6%. The interesting thing for me is that ALL of these initial 8 corrections have ended right around employment (Feb 2010, Jul 2010, Jun 2012 and Feb 14) or opex (Mar 2011, June 2013 and Aug 2017).

  • The largest correction was 17.2% post the April 2010 rally
  • The smallest correction was the August 2017 2.8% pullback

The market has certainly met the normal size of the correction, but the two week duration till last Friday’s low is quite short. It also did NOT end during the opex period or around employment, which is what I would have expected based on history but then again, lately, this market has liked to do everything quite quickly, especially the corrections.

The closely linked PERSISTENT Periods of Jul 09 to Jan 10 and Feb 10 to Apr 10 have been a time that I have been comparing this market too since late last fall as there as a number of similarities. In some ways the rapid fall in to the Flash Crash lows of Thursday, May 6th, 2010 have some of the same characteristics as last week’s fall. Back in 2010 the market then had a one week bounce before falling to a slightly lower low on the Tuesday post opex.

  • While the character of February opex would argue against this happening, it is something to keep in mind

NEW FED Chair

Powell is the first Fed chair that has seen a significant market decline during their opening period since before Martin in 1951. Other than Greenspan (14 days to the top in 1987), there has always been a solid start of term rally for the new Fed chair before the first correction.

  • Powell’s first significant speeches as Fed chair will be the semi annual testimony to Congress on Feb 28th and March 1st

It should be remembered that the last day of Feb tends to be down and the 1st day of March an up day.

Current Conditions

  • On a Monthly basis, the SPX (2656) is no longer OB, but the RSI (9) is still 67 and the SPY MFI (14) is still VERY high at 91
  • On a weekly basis, the correction has returned the weekly technicals to neutral with an RSI of 48
  • On a daily basis, the SPX put in a positive RSI divergence on the daily charts last week. Also, through the 12th, the SPX has only spent 3 trading days this month so far when it has NOT for some portion of the day spent some time below the lower daily bollo band – this is definitely an oversold condition.
  • Another rally in to opex week – unbelievably, the market rallied in to opex week for the 17th consecutive month – I REALLY can not believe this stat – but it is the truth….
  • Another quite interesting one is that HOURLY buys on the Friday before opex week have tended to see lower lows during opex week – but with the HUGE Rally since Friday’s low this seems less likely during this opex period

During bearish periods, the market has tended to have sharp rallies to start the opex period only to top out and fall later during the opex period and post opex. Unfortunately, given the market’s record streak of 17 consecutive months of rallying in to opex week, it is impossible to know whether this is a typical bearish bounce or the start of another V shaped rally.

The AUGUST 2011 analog

Since the bull market began, the market really has only had a few super sharp slides from recent near or close to bull market highs, the other period that comes to mind is August 2011. While the market had peaked for the year in early May and for the summer in early July, the early August slide was unrelenting until the August 9th (Fed day) bottom. The market bounced for a week and then made a higher low bottom on the Monday post opex week before another sharp rally.

The MARCH – April 2000 analog

The one analog that my research kept coming back to was the March – April 2000 period. The market did hit its major peak on Friday, March 24th and proceeded to decline until getting below the 200 day MA on Friday April 14th and then the market began a rally till April 26th – the market then chopped around in the April range with a number of re-tests of the 200 day MA until late September.

  • There are quite a few technical differences to this period, but the one thing that does stand out to me is that the market did stay within the range that was created during the second week of April. This could mean that the market stays within the 2530 to 2730 range for quite a few months as well.

Bottom Line:

First, I must admit I have been “out of synch” with the market and thus have kept quiet as I really only want to post helpful and relevant historical perspective.   I must also admit I was really planning to make this post with the market falling in to opex week (ending the long streak of rallies in to opex week…) and then I was going to make the historical case for a MAJOR opex bottom – the rally since Friday has ended that plan….   (yes, I am out of synch!)

The market is never that easy at the best of times and from a historical standpoint, the market here in February 2018 provides a mix of points for both sides of the market.

For the bulls:

  • February opex week is rarely a negative week
  • Historically, most oversold rallies last close to a week, if not longer…
  • February during the bull market since March 2009 has been characterized by either rally continuations or V shaped rallies with bottoms occurring in the first week of Feb in 2010, 2014 and 2015 and the second week in 2016
  • The market did get very oversold last week with multiple days below the lower bollo band

For the bears

  • It is rare, but not completely unheard of for the market to bottom with such oversold conditions right before opex week. The bottom on the Thursday before opex week in February 2016 ( with a small Monday to Wednesday post opex pullback) and April 2017’s Thursday before Good Friday / opex week bottom are two recent examples of oversold markets that did not continue their selling in to opex week, but these are TWO rare exceptions. Most of the time the market continues lower in to opex week, especially when there are hourly buy signals on the Friday before opex week, BUT there have also been bounces to opex Tuesday and then declines to lower lows post opex.
  • The correction has been quite short (just 14 days so far) and most of these persistent period corrections have taken more time and ended during the opex period or the employment period
  • A rally to just below or above a falling 20 day MA (right now above 2760 so a long ways away) and then a decline to the lower part of the range or possibly slight new lows (May 2010) is what most comparative analogs would suggest.

Overall, February opex week is rarely a negative week, but with Monday’s 36pt rally, it must be remembered that the largest February opex week gain since 1998 is the 54 pt rally in February 2016.

If it was not the month of February, I would be providing a lot more historical evidence that it was likely that any bounce in to opex week was likely to fail and there would be a very solid late in opex or post opex buying opportunity (like in August 2015 or May 2010 or August 2011), but it is the month of FEBRUARY and I do not have any relevant examples of such February opex buying opportunities.

I will be back post opex week to provide reminders about the President’s Day holiday (decent probability of a turn), as well as the market’s unusual characteristics for the Feb 24th to March 1st time period.

Ever interesting, but definitely more challenging when one is not quite in “synch” with the market.

-D

 

January 2018 Employment Turning Point Preview  (As of close of late morning on Thursday, January 4th)

HAPPY NEW YEAR!

The market remains bullishly persistent. The shorts and bears have been generally run over and anyone calling for a MAJOR top has been wrong, but minor tops have actually continued to occur, which has allowed the market to set up well for its continued advance. Interestingly, even with the bullish persistence, the month of December followed its historical pattern quite closely with one exception:

  • There was the early December low on Dec 1st with that unexpected and sharp 1 hour sell off down to 2606
  • There was then the pullback during the second week of December from 2665 to 2625 on the Wednesday before the late employment report
  • During opex there was a briefer than expected post FOMC pullback that did allow the normal December opex buying opportunity to briefly appear on Opex Thursday at 2652
  • The only historically unusual occurrence was the Monday post opex top at 2695 which set the high for the year – normally this December high occurs during the last week of the year.
  • Finally, there was the sell off on the last day of the year that also occurred in December 2016 only for the market to gap up on the first trading day of the year and rally.

Unfortunately, the month of January has never displayed a consistent historical rhythm like December. In fact, it is a real hit or miss month in terms of turning points.   The only consistent January turning point is OPEX when the MLK holiday is post opex (MAJOR turns occurred in 2008, 2009, 2010, 2014, 2015 & 2016). Alas, just like last January, the MLK holiday in 2018 is on Opex Monday, so there is no strong turning point edge for any period of this month.

EMPLOYMENT Overall and JANUARY Employment:

  • Employment overall in the past year has seen bottoms before employment (like in December, July and May) – which will not happen this month or minor tops some time between employment day and the Wednesday after employment. There has only been ONE MAJOR employment top in the last year – that was in August on the Tuesday post employment. There have been two rally continuations in October and February
  • In general, the January employment report (whether on the first or second Friday of January) has been characterized by short term turns lasting just a few days or rally continuations. The January employment turns since 2013 have lasted between 2 and 6 days. The longest employment turn was the 6 day 27pt pullback in January 2017 that lasedt from employment Friday to the Thursday before opex week. It should be noted that in January 2011 (Daily RSI 70) and January 2012 (Daily RSI 65), there were employment rally continuations.

CURRENT CONDITIONS

Once again the SPX (2728) is back at real extremes. There is nothing new to this point and it seems to be always the case in persistent markets.

  • The monthly RSI (9) is 92 – all I can say is WOW!
  • The weekly RSI (9) is 88 and the upper weekly bollo band which has been somewhat of a resistance level – or more of a stall level for the SPX is at 2735
  • The daily RSI (9) is 78. Per the study I have posted and referenced numerous times in 2017 (6 times to be precise), a daily RSI above 65 before the employment report is NOT a negative thing. The SPY has closed up 29 out of 36 times when the daily RSI is above 65 on the day before the employment report.
  • The one potentially negative point for the SPX is that it has spent the entirety of Thursday (so far) above the upper daily bollo bar – when the market is coming out of an oversold condition – above the daily bollo band is not a negative condition, but when over extended having not corrected for a period of time, then the SPX tends to stall or pull back – especially when it has not traded at or below its 20 day MA for an extended period of time. The last time the SPX traded at its 20 day MA was on November 20th when it was just at the beginning of its rally from November’s opex Wednesday bottom.

Bottom Line:

The market’s persistent bullishness continues. At some point in time, it will end and as I noted in December, the January opex period is the first time period where the history of persistently bullish markets suggests it is possible that the market’s persistent bullishness will be curtailed. (I will cover this more during the January opex period) For now, that means it is likely that any January employment top – if there is one – will likely be a short term one. Possibly just a stall for a few days, though a top on employment day or the Monday after and a pullback for 2 to 5 days is historically the most likely outcome.

  • While it does not seem possible, for next week, one must also remember that the last time the market FELL in to an opex week was in September 2016 – just AMAZING!

For now, my posting will continue to be light until I detect a strong and compelling historical edge. As I have written before, I have a lot of respect for the persistently bullish markets and I am well aware that the historical turning points (while still helpful like in December) tend to suggest that there should be more tops and longer pullbacks than what actually does occur when the market is in a persistent state.

It is very snowy here in the Swiss mountains, which has meant some good skiing (though not as much as we would like thanks to the snow, wind and poor visibility), but also lots of shovelling.

All the best for 2018!

-D

 
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