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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.

 

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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