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Denali’s Turning Points 2014

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.

 

2014: Turning Points in Review

For those not familiar with my work, I am of the belief that the US equity market has a tendency to turn around four key points (in order of importance): Opex, Employment, FOMC meetings and holidays.

I am a firm believer in the famous Santayana quote: ‘Those who do not remember the past are condemned to repeat it.’ While I do not believe history in the markets repeats exactly, I do feel it rhymes quite frequently.

Overall, there were 32 potential turning points in 2014 (as there were 9 combined turning points –eg Opex and FOMC in the same week). There were a total of 27 turns – 12 of them MAJOR and 15 of them minor.

Below is my review of the turning points for last year with a reminder on the turning point edges for each turning point.

All the best for 2015!

-D
Note:   While 50 SPX pts is not what it used to be, I used 50pts as my delineation between minor and major market moves. Some day, I may convert this to percentages, but for now, I prefer the pt based framework

Employment Turning Points in 2014

With respect to employment, here is my summarized turning point advice:

DO NOT BE SHORT in to the EMPLOYMENT REPORT unless the technicals overwhelmingly favour a short (ie. July 2011 and July 2012)!

  • Definitely look for major turning point as they occur almost 50% of the time– generally favors a bottom over a top, though in 2014 it was the year of employment tops with 6 of the 9 tops occurring on the employment report day.
  • Major Tops were a bit more frequent in 2014 than had been seen since 2011 as there were a total of 3 – compared to just 1 in 2013.
  • Major Bottoms can occur from the Tues before (Oct 2011) to the Tues after
  • If we have made a decent low early in the week, then there are quite a few instances of a rally continuation where we had bottomed earlier in the week

So what occurred with employment in 2014?

Employment in 2014 was primarily a year of minor tops as there were 9 tops in total. 6 of which occurred on the employment report day, 1 on the day before and 2 on the day after

Of the other three potential employment turns, there was one MAJOR Bottom (Feb – Wed before), one minor bottom (Aug – Employment Day) and one rally continuation (November)

Of the 9 tops, there were three major ones and 6 minor ones

MAJOR TOPS (3): April   (Employment Day), October (Monday after) and December (Employment Day)

Minor Tops (6): January (employment day), March (employment day), May (employment day), June (Monday after), July (employment day) and September (day before)

BOTTOM LINE: Employment was the most consistent turning point in 2014, but unlike prior years we rallied in to employment much more than in recent years. There were also only 4 major turns when in a normal year usually at least 50% of the employment turns are greater than 50pts.

REVIEW of OPEX Turns in 2014

Opex turns can occur from the Tuesday of opex week until the Wed after. Generally opex tops occur late in opex or post opex, while opex bottoms generally occur during opex week and are much more dependent on the market’s technical condition.

Opex was a surprise in 2014 as there were 3 months where we saw rally continuations – this was quite unusual, as there had only been TWO rally continuations from 2007 to 2013 (Jul 09 and Jan 13). The rally continuations were a testament to the POWER of the V reversals that were experienced in 2014.

The three rally continuations occurred in Feb (post the employment bottom), August (post the early August bottom) and November (post the MAJOR October opex bottom)

There were 2 MAJOR OPEX tops – the one in January was on the Tuesday post the MLK holiday and in September on Opex day when Alibaba ipo’d.

There were 4 minor opex tops – March (Opex day), April (Tues post opex / post holiday)), May (Opex Tuesday), and June (Tuesday post opex)

There was 1 minor bottom in July on Opex Thursday after a sharp one day sell off.

It should be noted that in May and July there were both sharp early week sell offs during opex – both could have been categorized as either tops or bottoms – I chose different designations as the technicals through hourly signals favoured one over the other – but it was close to a toss up in both opex weeks.

Last, but not least, there were 2 MAJOR OPEX BOTTOMS that led to EXPLOSIVE rallies in October (Opex Wed) and in December – (pre FOMC near the close on Opex Tuesday)

Bottom Line – the three rally continuations made 2014 an unusual year from an opex standpoint, but the four major turns in Jan, Sep, Oct and Dec demonstrated the turning point power of opex.

REVIEW of Holidays in 2014

The idea for holiday turns is pretty straightforward:

  • Look for a turn +/- 1 day around holidays (though for some holidays eg Thanksgiving, Good Friday and Christmas I give a little more wiggle room). Some holidays are much better than others. For example, Thanksgiving and Memorial Day show a marked tendency for turns, while Christmas almost never has a turn and Good Friday is erratic.   Also, turns are NOT expected when the MLK or President’s Holiday is during opex.
  • Note: VETERAN’s Day and Columbus Day are some times mentioned as possible turns – I have found NO discernible edge.

Holiday turns have been reasonably good turning points in 2014. Last year – more than most years – we have seen VERY strong rallies in to the holidays – really only the Good Friday and MLK holidays did not see extended runs or strong rallies in to the holidays and even those two holidays saw rallying markets.

There were 2 MAJOR Tops – MLK (post opex on the day after) and Christmas – which generally does not occur – on the Monday after.

There were 5 minor tops – New Year’s (Day before), Good Friday (Tuesday after), July 4th (employment report – day before), Labor Day ( a bit delayed as it was 3 days after, but quite close to the price of the day after the holiday) and Thanksgiving (day after)

Memorial Day was the one holiday that caused a significant surprise – normally it is one of the most consistent months for a turn – but not this year – as there was no turn. There was also no turn for President’s Day – but none was expected as it was during opex week.

Bottom Line: While holidays continue to seem like an unlikely time for a market turn, the market is continuing to consistently turn – though in 2014 – for the first year since AT LEAST 2007, there were NO holiday bottoms – which was surprising.

FOMC Turning Points and 2014 Review

The Primary Tendencies for the FOMC Turning Point can be summarized as follows:

  • Since 2007, the Market has made a remarkable number of turns around FOMC – almost 50% of the FOMC meetings – generally combined with Opex or Employment have resulted in Major Tops or Major Bottoms
  • Major tops can occur at any time around the FOMC, but it appears that if the market tops out prior to FED day (as in June 2013 – the day before or a few days after (eg Sept 2013 – Thursday after combined with opex, Sept 2012 – Friday after and April 2012 –Tuesday and April 2011 – Monday after) then we are looking at potentially MAJOR Tops
  • Major bottoms occur if we have fallen significantly from the prior week – bottoms can occur on Fed day or a day or two before (2009 was Monday before), the Tuesday of FOMC week seems to be a very popular bottom day lately
  • Minor tops seem to occur on the day or the day after
  • There have been a few Major tops when the run post FOMC has continued for 2 or 3 days after (eg April FOMC in 2011 and 2012)
  • Press events have all seen rallies in to the event – IF we have not fallen before, then selling the Monday after has been very profitable (Nov 2010, Apr 2011) or Tuesday, April 2012   – All June press events have had sell offs after

2014 FOMC Turning Point Review

With the FOMC occurring four times during opex week, there was quite a lot of turning point overlap in 2014. Interestingly, there were two FOMC meetings (Jan and August) that were labelled as MAJOR TOPS as they occurred during the middle of significant sell offs.

There were 2 FOMC MAJOR bottoms that occurred before the FOMC meeting – in April (on the Monday before) and in December (on Opex Tuesday)

There were 3 MAJOR Tops – January (day after), July (the Thursday before), and September (2 days after on Opex Day)

There were 3 minor tops – really only one of which played out as history might expect – that was in March – a minor top on opex day – 2 days after the meeting. The minor tops in June and October both occurred on the Tuesday after – normally a time for a MAJOR post FOMC top, but instead there were just short 24pt sell offs.

Bottom Line: FOMC continues to be a solid turning point, but it was less consistent than in previous year’s and only the March, April, September and December meetings really demonstrated the usually very strong FOMC turning point edge.   The J

TURNING POINT SUMMARY for 2014

While 50 SPX pts is no longer what it was back at SPX 1000, I still use it to delineate major and minor tops and bottoms – I may change the designation at some point…. But not right now.

 MAJOR Turning Point BOTTOMS (4) – not many opportunities in 2014:

  • Feb Employment (Wednesday before)
  • April FOMC (Monday Before)
  • October Opex (Opex Wednesday)
  • December Opex and FOMC (Opex Tuesday)

There were TWO MAJOR BOTTOMs not captured by one of the four turning points – the April one on the Friday before opex which was in line with the odd opex trend when the markets are closed on Opex Friday of bottoming earlier than expected (see Bear Stearns bottom on Opex Monday in 2008) and the August bottom on the Thursday post employment / pre opex.

 MAJOR Turning Point TOPS (8)

  • January Opex / MLK (Tuesday post opex post MLK)
  • January FOMC (Day after)
  • April Employment (employment day)
  • July FOMC (Thursday before)
  • September Opex / FOMC (Opex day)
  • October Employment (Day after)
  • December Employment (employment day)
  • Christmas (two days after)

 

New Year’s Holiday Turning Point Preview for 1-Jan-2015   (as of  10am EST on Wednesday, December 31st ):

Holiday turns have been reasonably good turning points in 2014 as we have major turned once (post MLK day and opex in January), minor turned five times (before New Year’s, post Good Friday before the 4th of July, a slightly delayed one for Labor Day) and not turned twice (President’s Day (not expected) and Memorial Day).

This year – more than most years – we have seen VERY strong rallies in to the holidays – really only the Good Friday and MLK holidays have not seen extended runs or strong rallies in to the holidays and even those two holidays saw rallying markets.

While I generally do not expect the market to turn +/- two trading days around Christmas, it is possible that we have seen such a minor top and the start of a 25 to 35pt pull back.  We have seen this post Christmas pullback in to a New Year’s holiday buying opportunity a few times – most recently in 2010 and 2012.  Interestingly, the 31st of December has marked an extreme in three of the last four years (2010 – a bottom near the close as we got hourly OS, 2011 – none, 2012 – MAJOR Bottom on 31-Dec-12 and 2013 – Minor top on 31-Dec-13)

Bottom line

With at least the small pullback from Monday, there is no current holiday turning point edge at the start of trading on Wednesday, December 31st, 2014.  There are two scenarios that could provide an edge, so one should be aware of them, if one is intent on trading or positioning oneself in the next few days.

-Sharp sell off in to the close of New Year’s Eve could produce a decent buying opportunity at the close or early in 2015

-Sharp rally in to start of 2015 in to 2097 – 2115 on the SPX could produce a pause and pullback as the SPX has generally pulled back after hitting round number milestones.

(I have posted this research before and will do so when it becomes relevant again)

Overall, there is no great edge here, and from a turning point perspective, it seems best to wait until the late employment report on January 9th or post opex / post MLK on Tuesday, January 20th  to position oneself for a turning point with a strong historical edge.

All the best for 2015.

HAPPY  NEW YEAR!

-D

p.s. note:  My January turning point preview will be published next Monday or Tuesday.

DETAILS for New Year’s Holiday

Current Conditions:

Current conditions are neutral with the SPY RSI around 60 and the MFI at 54. It is possible that Monday was a post Christmas holiday top as we closed in  a similar manner as to what occurred post Thanksgiving in November (minor top and 25pt SPX pull back).  Christmas is not a normal holiday turn time, and I generally do not expect a post Christmas turn, but as the market had a VERY strong run out of the FOMC / Opex bottom, a pullback does seem due.

 New Year’s

Overall ·        2010 and 2012 saw end of year sell offs that ended up being good to great buying opportunities.  While 2013 saw an overbought market that minor topped on 31-Dec.·        There have been some significant tops on the first day of the year as well as some good bottoms on the last day of the year
Pre 2007 ·        8 for 9·        Had pretty consistent turns either the day before or the day after, but not sure what will help predict what it will be….
Post 2007 ·        6 for 8·        If we sell off HARD on the last day of the year, it has been a good buy with the exception of 2008, but otherwise not a lot in it
Recent ·        2011:  Minor Bottom Got hourly OS on New Year’s Eve (2010) on the close and bounced hard·        2012:  Minor top: Opened with a HUGE GAP UP – stalled and fell for a few days·        2013:  MAJOR BOTTOM on the day before (31-Dec-12) (though futures were the Friday before) thanks to the fiscal cliff drama that caused a sell off that started during opex – we were then OFF on an epic January run·        2014:  Minor top on 31st-Dec-13, as we had a straight run higher from the Post FOMC / Opex  Wednesday  major bottom in to the 31st. It was a minor top  and a 6 day 26pt pullback
Hourly signals ·        Have worked well in 2009, 2010 and 2012

 

Holidays in General

Holidays in 2013 and 2014 have consistently met with expectations for turns – that does not mean all holidays had turns – but the ones that were expected to have turns did have them with the exception of MLK in 2013.

2014     6 of the 8 expected turns have occurred (out of 8 holidays so far)·        New Year’s Eve – Minor top on day before and declined for 6 days and 26pts·        MLK: (post opex)  MAJOR TOP on Day after for SPX and Wednesday after for MID and RUT – fell for 15 days and 111 pts·        President’s Day (during opex –  No turn expected) Minor 1 day 24pt pullback on the Wednesday after·        Good Friday:  (Turn expected on Tuesday after) – Minor top near close on Tuesday after that was tested on Thursday’s open – final pullback was 34 pts in 6 days.·         Memorial Day (Significant turn expected after)  NO TURN·        4th of July (post employment – turn expected) – Minor top on Thursday before (employment report) and a 7 day 32pt pullback)·        Labor Day (delayed turn on the Thursday after – super OB and market felt like it would never go down) – pulled back for 11 days, but only 32 pts.

·        Thanksgiving – Minor top on Day after and 25pt 2 day pullback

2013:  EXCEPT for MLK and Christmas, it was a very good year for turns with 7 of the 9 holidays producing decent turns·        New Year’s Eve – MAJOR BOTTOM on Day Before – this was the end of the opex correction and we exploded higher at the start of the year·        MLK (post Opex) – Turn EXPECTED – NO TURN·        President’s Day (post opex):  Minor top on day after holiday – declined for 7 days and 46pts·        Good Friday: Minor topped on the Tuesday after (when Europe has returned from its 4 day holiday weekend) and declined 34 pts in to the employment report·        Memorial Day:  MAJOR top on the day after – there was a sharp 2 day rally after the even sharp fall post opex. We then fell 75 pts till the day before the employment report·        July 4th  :  (pre employment) Major Bottom the day before – while this qualifies as a major bottom – in reality there was just a small 2 day 22pt pullback prior to the holiday and then we exploded higher for the rest of July on a good employment report·        Labor Day –MAJOR Bottom for MID and RUT on Day after and for SPX on Friday before – rallied 104 pts in to Septemer Opex Thursday

·        Thanksgiving – Minor top on day after and declined 34 points till the Wednesday after

·        Christmas – (No turn expected) – NO TURN

Opex / FOMC preview for December 2014  (as of early am on Monday, December 15th):

Per my employment review and my December turning point preview, as of Monday early AM (ESH5 at 2006 +15.5), the primary scenario (with two variants – A&B below) for this week is to rally in to opex week and the FOMC,  it may not have felt or looked like that late on Friday, but it has been what has occurred  during most opex weeks since October 2013.    This past September, we did make our lows on the Monday, while in March 2014 and December 2013, we made Sunday night futures low and gapped up and rallied, so it is possible that the early rally can reverse and we can follow the path of this past September.

Overall, given last week’s volatility, there should be a few more twists and turns before the year is over.  Please refer to my comments from last week as to why there should be one or two more.

The three primary scenarios for this week – in order of likelihood are as follows:

  1. Rally in to opex week (or bottom Monday and rally) and the FOMC, top on Tuesday or Wednesday and pull back to a late opex week or a Monday / Tuesday post opex week bottom and rally   (eg. June 2013, Dec 2010….)
  2. Rally in to opex week (or bottom Monday and rally) and just keep going till the end of the year (eg Dec 2001)
  3. Fall in to opex week and bottom some time between Wednesday (eg March 2011) and Monday / Tuesday post opex (eg. Dec 2011)

One other possible scenario that is a variant on Scenario  B and was seen in December 1998 (opex Monday bottom) and 2007 (Opex Tuesday bottom) is a bottom early in opex week and then a rally through at least Christmas.

An important thing to remember is that the LATEST the SPX has topped and pulled back during December opex week since 1998 is opex Wednesday (though other indices have had Thursday highs). December 2012 is the most recent example .  Thus what occurred this year in March (opex Friday minor top post FOMC), June (Tuesday post opex minor top) and September (opex Friday MAJOR top post FOMC) is less likely to happen.

Originally, I was going to include a lot of additional research that looked at December 2011 (bearish all week and Monday post opex bottom) and March 2011 (Japan Tsunami – Opex Wednesday bottom post FOMC), as well as mention the 2008 Quad opex weeks, but I decided that would be too much, and not particularly helpful given the Sunday night / early Monday rally.

Bottom Line:

EXPECT this week to be volatile.  There is currently no reason to expect anything other than the three scenarios noted above.  (though, as always, anything is possible – just not historically probable) A focus for December overall and December opex, in particular,  should almost always be about when we bottom and rally, as the best December trades are always buying the mid to late December opex related bottom.

As the week progresses, I will try to post relevant research that may help narrow the optimal entry day (but not level) for long positions, and any other historical edges that I might observe.

-D

Detailed Research

Key points about December opex and Quad witch opex weeks that have an FOMC meeting  (some repeats from September)

  • Quad opex week with an FOMC meeting almost always produce major turns with 50 plus SPX pt moves (June 2013, Sept 2013, Dec 2013 and Sept 2014 are recent examples though it did not do it in June or March 2014 which was a surprise)
  • With FOMC during opex week, the primary turn generally occurs post FOMC (but we did top on the day before FOMC in June 2013)
  • There is an FOMC press conference on Wednesday that should help produce some volatility – we generally rally in to the press conference

GAP Ups in to Opex week?

This is occurring more frequently.  We did it in March 2014 (Gap not filled till April), Dec 2013 (gap filled on post opex spike down on Opex Wednesday) and Sept 2013 (Gap filled on week post opex).  In general, it is a pretty bullish event, and it can be SUPER bullish if the gap is not filled within two weeks  (March 2014 is really the only recent exception)

Lows before FOMC (as we almost always rally in to FOMC!)

2014:

  • December: ???
  • October – bottomed two weeks before during opex week
  • September (opex week) – Monday before
  • August (employment week) FELL! – something different
  • June (opex week) Thursday week before opex / FOMC
  • April (employment week): Monday before low
  • March (opex week): Friday before low   (Sunday night futures low)
  • January: Monday before low

2013

  • December: (opex week) Thursday / Friday before double bottom (Sunday night futures low)
  • October – no low before
  • September (opex week) – no low before
  • July – (employment week) Friday before   (Monday before for RUT)
  • June (Opex week) – Thursday before
  • May (no turn before)
  • March – Tuesday before – but after an opex sell off
  • January – No low before

 

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.  Latest MAJOR Turn was the Opex day top in September 2014First looking at the bottoms,·        except for the Bear Stearns bottom in March 08, they have all occurred from the Wednesday of opex week (twice when there was extreme selling related to issues in Asia (Mar 07 and Mar 11) to the Wednesday after opex (just once – Sep 2012).  Last one was the spike low post FOMC in Dec 2013.·        The Monday after opex is slightly favoured as the most likely day for a low, particularly if it is a post opex pullback in a bullish market  (ie March 2010 when we just had a minor Wed post FOMC top to Monday after opex pullback)·        On a pure price basis (as SPY goes ex div on the Friday) – all of these lows except for one, have seen SPY down on opex day but except for March 09 (down 17), there have not been any huge losses on opex day.·        Generally, but not always, the high of the week is Monday or Tuesday.   Also, at least one, if not multiple hourly buy signals will indicate that the low is near.·        The bounces out of Quad opex bottoms are almost always significant with 42·        pts being the smallest in price and 6 days being the shortest in duration

·        Recent examples:

o       June 2013 a MAJOR Bottom on the Monday post opex after a Tuesday opex top pre FOMC

o       Dec 2013:  FOMC on the Wednesday and we spiked down for 1 minute to the low for the month and then we were off – quite a quick MAJOR BOTTOM.

 

 

Determining opex tops during Quad expiry is difficult but a lot of the timing seems to be due to the FOMC meeting being after opex – though this has started to change as more and more FOMC meetings are during opex week.

·        They have NEVER occurred on the Monday of opex week and the only Tuesday top was during the extreme bear market downtrade of June 2008 and the MAJOR top in June 2013 that created a pull back and great buying opportunity on the Monday post opex.

·        Also, Monday is quite frequently the LOW of the week (50% of the time) (see  June and Sept 2014 as recent examples…)

·        There has only been TWO post opex tops that were NOT related to the FOMC meeting being the week after opex – that was March 2012 – a Monday after minor top and June 2014 a Tuesday after top.  ie.  ALL of the tops were DURING opex week except for two as long as the FOMC was not the week AFTER opex!

·        The smallest pullback from a Quad opex top was March 2013 – when there was just a 20pt Thursday to Tuesday after pullback – BUT it should be noted that the FOMC was on the Wed post opex and we almost always rally in to the FOMC

·        Recent examples:

o       Sept 2014:  MAJOR TOP on Opex Friday post FOMC

o       June 2014 – minor top on Tuesday post opex

o       March 2014 – Wed was FOMC day and we were down on Wednesday, but back up on Thursday and then minor topped at Friday’s open and pulled back 42 pts in 6 days.

o       Sept 2013:  FOMC on Wednesday of opex week – MAJOR TOPPED on Opex Thursday and fell in to October

 

 

Quad Opex Tops·        2014o       Sep:  MAJOR TOP on Opex Fridayo       June:  Minor top on Tuesday post opexo       Mar: Opex Friday – at open  (minor top)·        2013o       Sep: Thursday before – Post FOMC (Major Top)o       Mar:  Thursday of opex week   (Minor top)·        2012

o       Dec:  Opex Wednesday (Major Top)

o       June Tuesday after (pre FOMC) – MAJOR TOP)

o       Mar:  Monday after – Minor top

·        2011

o       Sep:  Tuesday after (pre FOMC) – Major Top

·        2010

o       Sep:  Tuesday after (Post FOMC) – Minor top

o       June:  Monday After (Pre FOMC) – Major Top

·        2009

o       Sep:  Wednesday after (on Fed day) – Major Top

·        2008

o       Dec:   Wednesday Before  (Major Top)

o       June:   Tuesday Before – (Major Top)

·        2007

o       Sep      Wednesday before – Gap up Doji  (minor top)

o       June:   Friday:  Gap up – Doji Day  (MAJOR TOP)

 

Quad Opex Bottoms·        2014o       None so far·        2013o       Dec:   Wednesday before – FOMC Spike bottomo       June:  Monday after   (Major Bottom)·        2012o       Sep:  Wednesday post opex (Minor Bottom)·        2011

o       Dec:  Monday After – closed at the lows (Major Bottom)

o       June:  Thursday of Opex week  (Major Bottom)

o       Mar:  Wednesday of Opex Week  Japan Tsunami (Major Bottom)

·        2010

o       Dec:   Thursday Before  – Minimal 2 day Post FOMC correction (MAJOR Bottom)

o       Mar Monday after (Major Bottom) – after minor correction but MDY Hourly signal

o

·        2009

o       Dec – Opex Friday – midday  (Major Bottom)

o       June  Tuesday After  (after big down Monday) – minor bottom

o       Mar:   Opex Friday – at the close – Major Bottom

·        2008

o       Sep:  Thursday Before – Paulson afternoon save (Major Bottom)

o       Mar:  Monday Before  (Major Bottom)

·        2007

o       Dec: Wednesday Before  (Major Bottom)

o       Mar:  Wednesday Before (Major Bottom)

 

December Opex Detail

December – somewhat unexpectedly for the normally hyper bullish Santa rally pundits has produced pullbacks and major bottoms in the last few years so it is one to watch

  • Bottom line, it always produces a good buying opportunity – the question is WHEN? And December opex is all over the map since 2007 in terms of when that buying opportunity occurs….
  • Major Turns in 2007 – both a MAJOR BOTTOM on the Tuesday of Opex week and then a MAJOR TOP (post opex / post Xmas top), 2008 – BOTH a MAJOR TOP (Opex Wednesday) and MAJOR BOTTOM (Monday after bottom), 2009 (opex day bottom) and 2011 (Monday after bottom)
  • 2009 saw a minor low at Thursday’s open
  • 2011 saw a MAJOR BOTTOM on the Monday after
  • 2013: Saw the spike down post the FOMC meeting and then a super strong rally.
  • MAJOR TOP in Dec 2012 on the Wed / Thurs and a MASSIVE O/N move lower on Thursday night / Friday before we bottomed a week later
  • IGNORE, Hourly sell signals POST opex (ALL losers!), otherwise most signals have performed reasonably well

December Opex weeks since 2007

    1. Dec 2007: Tuesday MAJOR BOTTOM and then MAJOR top on the day after Christmas
    2. Dec 2008: Monday low and a 60 plus point bounce in to Wednesday and then a SHARP fall in to a Major Bottom on the Monday after opex
    3. Dec 2009: Major Bottom on Opex day – we rallied in to the Wed of opex week and then fell in to opex day, which was the last low until we stalled and rolled over in mid Jan.
    4. Dec 2010: Minor correction from Fed Day Tuesday top in to a Thursday at the open low and that was the last low for a LONG time until we peaked at FEB opex DAY!
    5. Dec 2011: Tues high for the week (though we were correcting from the previous week already) and then down in to just Wednesday… we bounced in to Friday, but then fell hard on the Monday and that was THE LAST TIME we saw 1200!
    6. Dec 2012 – was actually a buy on the Friday post opex in the after hours thanks to the FISCAL Cliff
    7. Dec 2013: A fast and furious one minute spike down to new lows for the month created a bottom and we were off until the end of the year

 

December 2014 Employment Turning Point (as of cob on Thursday, December 4th):

Per the December turning point preview, given the history since 2007 of bottoming during November opex or post Thanksgiving, the very pronounced trend for December employment is to rally in to the number and minor top some time between the day of the employment report and the Wednesday after. Given Monday’s pullback and subsequent rally, the pattern is continuing in December 2014.

So the questions really are:

Will we minor top?

If we do minor top then, WHEN?

Could we just continue in to opex without a turn? – any thing is possible and there are a few examples of two consecutive months of rally continuations, but there has normally been longer and somewhat deeper midmonth corrections to allow the market to re-set. (one day and 25pts is not a lot…)   Also, we had two ten minutes buy signals on Thursday which is very rare, and, in the past, have been indicative of a market that is WEAK or is weakening. (see below).

If we do minor top then, WHEN?

In the past, here are the stats since 1998 when we have rallied in to employment in December:

Rally in to employment (13 times)

Ended: Fri – 2, Mon after – 2, Tues – 2 Wed – 3 In Opex – 4

In 2014, the day of the employment report has been the favored time.

(8 tops out of 11 – Employment Report day – 5, Day Before – 1 , Day After – 2)

Bottom Line   

Ultimately, THE trade all of this year – except November 2014!!! (and almost every December since 1998) has been for the market to pull back the week after the employment report and then rally strongly in to opex. This is what is most likely to happen, based on history and the technical position of the market – but a lot of things that SHOULD have happened in this persistent bull market (like an August opex turn or a bigger November opex / Thanksgiving turn – 1 day and 25pts???) ) have not happened. (and I am always needing to remind myself that despite the historical evidence, it is always dangerous to under-estimate this persistent bull….)

Still at least a minor top and pull back is due and probable – the primary question is when and at what level   – those questions will be answered soon……

And while I am occasionally mocked for my standard warning   (DO NOT BE SHORT in to the EMPLOYMENT REPORT unless the technicals overwhelmingly favour a short (ie. July 2011 and July 2012)!

— at least at 4am EST on the employment day (ES = 2075), once again, one should never be short in to the employment report

-D

Recent employment reports

So I was a turning point Jinx in November as I stated that employment had become the most consistent turning point this year – sorry about that…

  • Nov 14 – NO TURN – Rally continuation
  • Oct 14 – Major top (157 pts) on Monday after
  • Sept 14 – Minor (32 pts) top on Thursday before
  • Aug 14 – Minor bottom (27 pts) on employment day
  • July 14 (pre holiday) Minor top (32 pts) on employment day
  • Jun 14 – Minor top (29 pts) on Monday after
  • May 14 Minor top (31 pts) on employment day
  • April14 – MAJOR TOP (84 pts) on employment day
  • Mar 14 minor top (45 pts) on employment day
  • Feb 14 – MAJOR BOTTOM (160 pts) on Wednesday before employment
  • Jan 14 – minor top (29 pts) on LATE employment day

December employment reports

  • Almost always bottom early in the week and rally to a top (mostly minor) during the week after employment
  • Two Major tops afterwards in 2007 and 2011 – timing of FOMC seems to matter – as does the condition of the market coming out of the Thanksgiving holiday
    1. 2007: MAJOR TOP on the Tuesday after
    2. 2008: MAJOR BOTTOM on employment day and a HUGE BOUNCE
    3. 2009: Minor top on employment day and then a short fall till the Wednesday after
    4. 2010: Rally continued as we had bottomed on the Monday before
    5. 2011: MAJOR TOP on the Wednesday after
    6. 2012 Minor Top on the Wednesday after
    7. 2013: Minor top on the Monday after – pulled back for 3 days and 39pts

Current Conditions

The weekly stochastics at 97 are elevated (joint third highest since 2007) High weekly stochastics (above 90) generally indicate that a minor top is near. There have been 21 instances in the last 95 employment reports.

  • 5 rally continuations
  • 9 minor tops
  • 5 Major Tops
  • 2 bottoms after sharp sell offs earlier in the report week (eg Aug 2012)

On a daily basis, the daily RSI of 68 is elevated, but not remarkable. One interesting thing is that we just slid out of being daily MFI OB for the second time in the SPY – this is the same condition the SPX experienced in September when we minor topped on the Thursday before (and had two 10 min buy signals during the day). 2014 now has had 5 months with elevated SPY MFI readings and two that just missed being over 75 – no other previous year since 2007 has had more than two instances – the SPY is BID!

Lastly, we had two 10 minutes buy signals on Thursday – this is quite a rare occurrence on the Thursday before employment. It has only happened 6 times since 2009. 3 times we were in serious sell offs (Oct 09, Feb 10 and May 10 – the flash crash). The other three times were Sept 2014 (minor top on the Thursday and a 10 day slide) and May 2011 and May 2012 where we ended up sliding for the first 3 weeks of the month until we had opex bottoms – Just an interesting fact from my database.

PRE OPEX TURNS!!!

(WITH THE EXCEPTION of NOVEMBER 2014!!!)

THIS is THE MOST IMPORTANT THING TO REMEMBER about 2014!!!

It is also one of the BIGGEST December tendencies, particularly as we have the FOMC meeting during opex week.

(note: Below is essentially what I have been writing for the last few months)

We have been pulling back and bottoming the week before opex week consistently since October 2013! (except for November) These bottoms have been generally on the Thursday before opex week (see the August low, see the July low before opex, the June low post employment, etc…) But it was Opex Monday for September and just a one day 45pt low to high bounce on the Wed before opex in October.

The lows made before opex – really is something that is new; and it is partly due to the fact that we are consistently getting employment turns. After seeing a blog that consistently highlighted the Thursday / Friday the week before opex as pre opex turn times, I went back to check the records and found nothing that remarkable. It occurred 7 times out of 12 in 2012 and 5 times out of the 12 months in October with 1 Wednesday in 2013.   Then we had lows before opex week (and gap ups on opex Monday) in March and April and May for the RUT (but it was a Wednesday low for the SPX) and it got me thinking that maybe, this is yet another thing I need to track, so here goes.

Watch for lows (currently the edge seems to be much more with lows not highs) on the Thursday or Friday before opex and then a rally in to opex. The Wednesday before low in October 2013 was the first time we started to consistently see the low turns occur pre opex.

 

December 2014 Turning Point Preview (as of close of business on Tuesday, December 2nd, 2014 ):

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

Apologies for the delay in posting this preview, but after reviewing the data in detail, I decided to do some much more detailed research back to 1998 as December – more than any other month has an extremely distinct pattern that it generally (though not always) follows. That pattern is as follows:

  • Early Month or late November low
  • Rally in to employment – generally ending post employment
  • Pull back for a few days generally ending on the Thursday or Friday before opex
  • Rally in to opex
  • Opex can then be a high or a double turn with a high and a low
  • Rally in to year end

With the FOMC meeting during opex week, the combination generally provides a minor top and a pullback to a buying opportunity for the rally that at least goes to after Christmas, if not Dec 31st.

It does not always happen – but as most aspects of this pattern have occurred 11 out of the last 16 years, it is a pattern worth noting. I have included a semi summarized version of the information in the detail below.

In addition to the above pattern, here are the December highlights:

 Employment

  • Given the history since 2007 of bottoming during November opex or post Thanksgiving, the very pronounced trend for December employment is to rally in to the number and minor top some time between the day of the employment report and the Wednesday after . There are exceptions – but even when we topped on the day after Thanksgiving in 2013, we still managed to rally in to the employment number with a bottom on the Wednesday before the report and a minor top on the Wednesday after.
  • With Monday’s pullback, this scenario may occur yet again in December 2014
  • Only outlier to note is that 3 times since 1998 the market has made a Wednesday before employment high and fallen in to employment

FOMC during Opex week

  • This is an easy one – we almost always rally in to the FOMC meeting when it is during opex week. This almost ironclad rule has been true once again in 2014 – though it took its time in September:
    • March 2014 – Bottomed on the Friday before and minor topped on Opex Friday
    • June 2014: Bottomed on the Thursday before and minor topped on the Tuesday after Opex (which is VERY late for an opex week that contains
    • Sept 2014 – Waited until Opex Monday to bottom and then MAJOR peaked on Opex Friday
  • Note: With the exception of November 2014, when we just rallied, there has also been the regular tendency since October 2013 for the market to pull back until generally the Thursday or Friday before opex week (though there are slight exceptions with May 2014 being on the Wednesday and September 2014 being on Opex Monday)
  • In addition to the tendency to rally in to the FOMC, there has then been a pullback during opex that has then produced a major buying opportunity in December (2008 and 2012 were the only years where the pullback lasted till after Christmas)
  • In December 2013, we major bottomed on Opex Wednesday post the FOMC decision when we bottomed for the month during a one minute spike down to new lows post the FOMC decision

 Holidays

With the exception of the government shenanigans during 2012 (and 2008), it is true that we always rally in to the Christmas holiday and I have not found any specific turn edge with the Christmas holiday, BUT NEW Year’s definitely has a small edge with minor turns occurring frequently either before or just after the holiday. In 2013, we topped near the close on December 31st. While in 2012 , we bottomed near the open on December 31st.

 Bottom Line

The persistent bull is still alive and well. I was wrong to suggest being flexible in November was the right call, as the persistent bull ran right over that call. For December 2014, there does not seem to be much reason to suggest the market will deviate from its normal script (provided above) of providing at least two buying opportunities and one or two selling opportunities during the month. Of course, that is only the normal script and for long stretches of 2014 (and 2013), the market decided to NOT follow the normal script, so we will just have to see what Mr. Market has in store for us.

ALL the best for your last few trading (and investing) weeks of the year

-D

 DETAILS and OTHER NOTES for December Turning Point Preview

December Rhythm since 1998 – a fairly distinct pattern

Early Low (14 out of 16 *** 1 outlier)

Fri before – 1 Mon – 4   Tues – 4 Wed – 3 Thurs – 2 Fri – 0

  • 2013 – Wed, 3rd
  • 2012 – Wed 5th
  • 2010 – Tues, Nov 30th
  • 2009 – Fri, Nov 27th
  • 2008 – Mon, Dec 1st
  • 2007- Tues, Dec 4th
  • 2006 – Tues, Nov 28th
  • 2005 – Wed, Nov 30th
  • 2004 – Mon, Nov 29th
  • 2003 – Monday, the 1st
  • 2001 – Mon, 3rd
  • 2000 – Thursday, Nov 30th
  • 1999 – Tues, Nov 30th
  • 1998 – Thurs 3rd

 EARLY Highs – All on first Wed

  • 2003: Wed, Dec 3rd
  • 2002 : Wed Dec 2nd – HIGH for month!!!
  • 2001: Wed, Dec 5th – HIGH for month!!!

 Rally in to employment (13 times)

Ended: Fri – 2, Mon after – 2, Tues – 2 Wed – 3 In Opex – 4

  • 2013 – Mon 9th
  • 2012 – Wed 12th
  • 2011 – Wed, the 11th
  • 2010 – Opex Tues, 14th
  • 2009 – Fri, 4th
  • 2008 – Mon, 8th
  • 2007, Tues, the 11th
  • 2006 – Opex Mon 18th
  • 2005 – Opex Wed 14th
  • 2004 – Opex Wed, the 15th
  • 2000 – Wed, Dec 6th
  • 1999 – Friday, the 3rd
  • 1998 – Tues, Dec 8th

 Fall in to Employment – 3 times

  • 2003: Wed, Dec 10th
  • 2002: Monday, Dec 9th
  • 2001: Friday, Dec 14th

 RALLY in to opex – 13 times

Day started: Mon post employment – 1 Tues – 0 Wed – 2 Thurs – 3 Fri – 3 Rally Continuation – 4

  • 2013 – Thurs, 12th
  • 2012 – Fri, 14th
  • 2010 – rally continuation
  • 2009 – Wed 9th
  • 2008 – Fri, 12th
  • 2006 – Rally continuation
  • 2005 – rally continuation
  • 2004 – rally continuation
  • 2003 – Wed, 10th
  • 2002 – Mon, Dec 9th
  • 2001: Friday, Dec 14th
  • 2000: Thurs, 7th
  • 1999: Thurs, Dec 9th

FALL in to Opex – 3 times

  • 2011 – From Wed 12th
  • 2007 – From Tues 11th
  • 1998 – From Tues, 8th

 OPEX Turn Highs   (None – Twice   and Highs – 11 times)

Opex Mon – 3   Opex Tues – 2 Opex Wed -6

  • 2013 – Opex Mon High
  • 2012 – High on Opex Wed
  • 2010 – Opex Tues high
  • 2009 – Opex Wed high
  • 2008 – Opex Wed high
  • 2006 – Opex Monday
  • 2005 Opex Wednesday
  • 2004 – Opex Wednesday
  • 2003 – NONE
  • 2002 – Opex Tues High
  • 2001 – None
  • 2000 – Opex Wed high for Month
  • 1999 – Opex Monday

Opex Bottoms (8 times)

Opex Mon -1   Opex Tues -1   Opex Wed -2 Opex Thurs – 1 Opex Fri – 1

Mon Post Opex – 2

  • 2013 – Opex Wed bottom
  • 2011 – Mon Post opex
  • 2010 – Opex Thurs bottom
  • 2009 – Opex Fri bottom
  • 2007 – Opex Tues
  • 2004 – Mon post opex
  • 1999 – Opex Wednesday
  • 1998 – Opex Monday

Start of Year end Rally   (11 times)

Start Day 2nd Wed: 1   2nd Fri: 1

Opex Mon: 1   Tues: 1   Wed: 2 Thur: 1 Fri: 1

Post opex Mon: 2   Thurs – 1

  • 2013 – Opex Wed
  • 2011 – Mon Post opex
  • 2010 – Opex Thurs
  • 2009 – Opex Friday
  • 2007 – Opex Tues
  • 2004 – Mon post opex
  • 2003 – Wed, the 10th
  • 2001: Friday, Dec 14th (ended on 28th)
  • 2000 – Thurs, Dec 21st
  • 1999 – Opex Wed, the 15th (Dec 30th)
  • 1998 – Opex Monday, the 14th (ended on 30th)

 Start of Year end Fall (5 times) – Always from Mon to Wed in opex

Opex: Mon: 1 Tues: 1 Wed: 3

  • 2012 – Opex Wed (ended on 31st)
  • 2008 – Opex Wed (ended on 29th)
  • 2006 – Opex Monday (ended on 26th)
  • 2005 – Opex Wednesday (ended on 3-Jan)
  • 2002 – Opex, Tuesday, the 17th (31-Dec)

 

Just a little research that I did back to 1976.

HIGH FOR THE year in November?

  • Nov 1980 – pulled back sharply in December – high was on opex Wednesday (Nov 19th) Decline started on 1-Dec
  • Nov 1982 – peaked on 4-Nov
  • Nov 1983 – Peaked on last day of Nov – Wed, the 30th

 November Persistent rally – Research from 2013 that I have just updated

When I called the rally in November 2013 a persistent rally, I still was aware that there were two dips of 29 and 25 points during that month. Now, I may need to update that characterization given the fact that there were NO noticeable dips in ALL of NOVEMBER 2013 with the record breaking streak of days above to 5 day MA only coming to an end on the last day of the month,

Definitely the character of the month of November has changed in the last two years. In 2007 through 2012, we had 6 straight years of mid to late November buying opportunities that were all the result of large pullbacks – even 2009 when some futures were down limit for a while on the Friday post Thanksgiving.

Following up on my research of October bottoms below the 200 day and then what happened in December, here is research on end of November peaks and pullbacks in to December.

End of November Peaks and Pullbacks in Dec

  • 1998: Peaked on the day after Thanksgiving the 27th at 1193 – fell sharply for two days to the 20 day MA (-43pts) bounced on The Tues / Wed and fell again to a slight new low on the Thursday before rallying on employment day and making a 1pt new high on the Tuesday post employment (8th) at 1194 and then FELL to a lower low on opex Monday, Dec 14th (-57pts) at 1137 and then rallied in to early January
  • 2001: Peaked at 1163 on 27-Nov – Tues post Thanksgiving and fell to 1125 on 29-Nov and bounced to 1173 on 6-Dec (Thurs) before heading to Fri, Dec 14th lows at 1114 and bouncing in to an early January peak
  • 2002 – Peaked on 2-Dec at 954 and fell to a 31-Dec low at 869 without any significant turns
  • 2004 – stalled in late November, but then surged on the 1st of December to new highs. Had a brief peak on employment day and pulled back to the Wed post employment to a bit below the 20 day before rallying in to a peak on 3-Jan-05
  • 2005 – stayed in a reasonably tight trading range bounded by the upper bollo band and the 20 day MA until breaking down on 27-Dec and falling to 3-Jan-06. (The peak for December was on opex Wed, Dec 14th)

Thanksgiving Holiday Turning Point Preview for Nov 2014 (as of cob on Wednesday, November 26th):

Holiday turns have been reasonably good turning points this year as we have major turned once (post MLK day and opex in January), minor turned four times (before New Year’s, post Good Friday before the 4th of July and a slightly delayed one for Labor Day) and not turned twice (President’s Day (not expected) and Memorial Day). We are also overdue an opex turn and it would be very rare to have a third month in 2014 without an opex turn.

It is stating the obvious – but I will do so anyways – that we are in uncharted territory in SO MANY ways:
• Super extended streak above the 5 day MA
• No turn in November
• At all time highs…
• Plus quite a few more points

So we are overdue a turn – not a big turn – but at least a minor turn of 25 to 45 SPX that lasts a few days. In September, we were in the same situation after the strong August run and we turned on the Thursday post Labor Day (pre employment) which is slightly later than normal. We also were in a similar situation on New Year’s Eve – it felt (at least to some people) that the market would never and could never go down again

The SPY RSI at the close on Wednesday was 84 – VERY high, which is by far and away the highest before a holiday since 2007. The previous two RSI highs were post MLK in Jan 2011 (minor top) and Jan 13 (another epic squeeze with no turns for the whole month) both with a value of 77.

It would be rare to have a month with NO TURNS – though we are certainly working on it right now…. It would also be a first for 2014 to have a year where we did not have an opex turn 3 times! but again the persistent bull will do what it wants to do…. and it certainly likes doing things that have not been seen since 2007 (if not 1928!!!)

What about the Thanksgiving Holiday?
• Along with the late November buying opportunity, Thanksgiving has marked a buying opportunity every year since 2007 except for 2012 when we rallied strongly out of the opex Friday low and 2013 when we had a minor top on the Friday after Thanksgiving. Prior to 2007, there were turns in 8 of 9 years, though most of the turns were minor. (the one failed turn was in 2003 when we had bottomed on opex day just like in 2012)
• The last two minor tops were a week long pullback in 2005 from the Wed before Thanksgiving to the Wed after that was 21pts (note Daily RSI in 2005 was 84 – same as this year)
• and 2013’s 34 pt 5 day pullback. The last MAJOR TOP was in 2002 when we peaked on the Monday post Thanksgiving which was the final high for the year.

Bottom line

We are dealing with a persistent bull market where top calling (or even calling for a pullback) has never proven right for very long. A minor top and a pullback of at least 25 to 45 points for a few days is still likely to relieve the overbought conditions and allow the market to re-set. But one must remember that we are in a persistent bull market that will do what it wants to do.

It does not have to happen, but it is the likely outcome as we have not yet had the normal November opex turn and we did not turn for November employment either.

Enjoy the holiday weekend!

-D

DETAILS for Thanksgiving

Current Conditions:

The SPY daily RSI is 84.4 and the MFI is 85 – we have been MFI OB for 4 weeks now – I have not found any instance going back to 1997 that we were daily MFI OB for a whole month! (Only similar instance was Dec 31, 2003 to 27-Jan 2004 – there was then a sharp 3 day 39pt pullback.

Here is a look at VERY HIGH SPY RSIs during holiday period
There have been 70 holidays since 2007 and 12 have had a daily RSI around the holiday that has been above 70. The stats for those holidays are as follows:
MAJOR TOPS -2 (July 2011 and Feb 2011)
Minor tops – 8 (most recent with pullback amount Labor Day 14 – 32pts, July 4th 14 – 32pts, New Year’s 14 – 26pts and Thanksgiving 13 34pts)
NO TURN – 2 (Christmas 13 – not normally a turn and MLK 13)
Going further back, to 1998, there have been four other instances of holiday periods having extremely high daily RSI 9s (above 80) during the holiday period:
• New Year’s 2000 – 92 RSI – Major TOP on the day post the holiday – 110pt 2 day pullback
• Thanksgiving 2005 – 84 RSI (is this the analog?) – Minor top on the Wednesday before Thanksgiving – 7 day 21pt pullback (NOTE: In October 2005, SPX traded below the 200 day MA and then rallied too)
• Thanksgiving 1998 – 83 RSI (or is this the analog?) – Minor top on the Friday after Thanksgiving – 5 day 45pt pullback (NOTE: In October 1998, SPX traded below the 200 day MA and then rallied too)
• New Year’s 2004 – 81 RSI – NO TURN – market was on a relentless rally that did not stop till Jan 27th, 2004.

November’s since 1996 that never pulled back to 20 day MA
• Nov 96 – RAN uncorrected – STRAIGHT higher until Tuesday post Thanksgiving – stalled with RSI of 92!!! And fell hard on 2nd day of Dec (a Tuesday) first bounce was at 20 day and then down to lower bollo for Dec opex
• Nov 98 – Lot of similarities with the BIG bottom below the 200 MA in October – Closed at the highs on Friday post Thanksgiving at the upper bollo – then fell hard to the 20 day MA two days later – ABC correction occurred until Opex Monday near the 40 day and the lower bollo
• Nov 04 – topped on Opex Wed 17-Nov and went nowhere till touching 20 MA on 1-Dec
• Nov 05 – Kept going till opex Thursday in Dec! BUT did peak on Wed before Thanksgiving and pulled back 21pts till Tuesday, 30-Nov – then rode the 20 day MA up in Dec
• Nov 06 – peaked on 22-Nov 06 and pulled back below 20 day MA on Tuesday, Nov 28th

Holidays in General

Holidays in 2013 and 2014 have consistently met with expectations for turns – that does not mean all holiday had turns – but the ones that were expected to have turns did have them with the exception of MLK in 2013.

2014 5 of the 6 expected turns have occurred (out of 7 holidays so far)
• New Year’s Eve – Minor top on day before and declined for 6 days and 26pts
• MLK: (post opex) MAJOR TOP on Day after for SPX and Wednesday after for MID and RUT – fell for 15 days and 111 pts
• President’s Day (during opex – No turn expected) Minor 1 day 24pt pullback on the Wednesday after
• Good Friday: (Turn expected on Tuesday after) – Minor top near close on Tuesday after that was tested on Thursday’s open – final pullback was 34 pts in 6 days.
• Memorial Day (Significant turn expected after) NO TURN
• 4th of July (post employment – turn expected) – Minor top on Thursday before (employment report) and a 7 day 32pt pullback)
• Labor Day (delayed turn on the Thursday after – super OB and market felt like it would never go down) – pulled back for 11 days, but only 32 pts.

2013: EXCEPT for MLK and Christmas, it was a very good year for turns with 7 of the 9 holidays producing decent turns
• New Year’s Eve – MAJOR BOTTOM on Day Before – this was the end of the opex correction and we exploded higher at the start of the year
• MLK (post Opex) – Turn EXPECTED – NO TURN
• President’s Day (post opex): Minor top on day after holiday – declined for 7 days and 46pts
• Good Friday: Minor topped on the Tuesday after (when Europe has returned from its 4 day holiday weekend) and declined 34 pts in to the employment report
• Memorial Day: MAJOR top on the day after – there was a sharp 2 day rally after the even sharp fall post opex. We then fell 75 pts till the day before the employment report
• July 4th : (pre employment) Major Bottom the day before – while this qualifies as a major bottom – in reality there was just a small 2 day 22pt pullback prior to the holiday and then we exploded higher for the rest of July on a good employment report
• Labor Day –MAJOR Bottom for MID and RUT on Day after and for SPX on Friday before – rallied 104 pts in to Septemer Opex Thursday
• Thanksgiving – Minor top on day after and declined 34 points till the Wednesday after
• Christmas – (No turn expected) – NO TURN

Opex preview for November 2014  (as of mid afternoon on Tuesday, November 18th):

There is NO immediately identifiable analog for this market right now. Since October 2013, we had traded down the week before opex, but that recent opex feature did not materialize, so as we are in a new pattern. In order to try to identify the pattern, I decided to DIG into quite a few different aspects of the current market (eg: no employment turn, extended daily MFI OB periods, etc…).

My digging confirmed that we are highly likely to have at least a minor opex top, but probably not a lot more than that, as the only MAJOR top for November opex was in 2007 – but it is always possible.

Here is what I found in my digging:

  • November opex: A time for major turns, but 2014 may be following the 2013 pattern of just a minor pullback post opex
  • Current Conditions: We are at relative extremes, but only a few times has this meant we have experienced a major opex top
  • No MDY hourly buys in over 30 days going in to opex – again most likely a minor pullback that offers a decent entry opportunity the day after the next buy signal
  • MDY MFI OB going in to opex: Slightly more weight to a MAJOR top during opex week
  • No dip the week before opex – while the last time we did not have a dip the week before opex was Sept 2013 when we major topped on Opex Thursday, prior to that, the history does not provide a strong edge
  • No employment turn – makes it highly likely that we have at least a minor top or an opex week pullback
  • Opex after a MAJOR Bottom during the previous opex – Again, provides a bit more weight to a possible major top – only the July 2013 super strong V reversal rally produced only a minor top
  • V Reversals in the RUT – we are in the timing band for a move lower – could be either a MAJOR TOP or a decent pullback and then one more rally

We are down to just three (out of 13) potential November analogs based on my research of MAJOR OCTOBER bottoms below the 200 day MA – the best that the bears can hope for is a pause and a pullback to the 20 day MA.

Bottom Line:

We are still in a persistent bull market – one day that will change – but until it does, one must remember that TOPS are processes – extended processes – and bottoms are events – generally slightly earlier than history would predict or one would expect.

Per my November preview, the best time to buy in November historically was after a correction in to opex or post Thanksgiving. Given all of the evidence that the market will at least have a minor pullback – possibly only as far as the 20 day MA, the bigger question is timing and levels. I will leave the levels to the experts.

 

I did note in the detail below that post opex is when 7 of the last 13 opex top turns have occurred…. But interestingly, with the exception of 2013, the six November opex weeks between 2007 and 2012 had their highs for the week – early in the week with the latest high being the Wed opex week high in November 2007.

It is definitely one ever interesting and super persistent bull market!

-D

Detailed Research

November Opex overall

  • Definitely gaining a reputation for major turns – especially bottoms lately – though that was not the case in 2013. Pre 2011, we made a turn during opex week 2007 (Wed – top), 2008 (Fri – Bottom), 2009 (Fri – low), 2010 (Tues – bottom). 2011 was the MAJOR sell off in to the post Thanksgiving low. 2012 was a MAJOR OS Daily bottom on opex Friday.   While 2013 broke the trend with just a minor 25pt pullback from the Monday post opex

Current Conditions

SPY RSI is 79, MFI is 85 – these are high, but for opex, very high stochastics and RSI do not mean we are making a MAJOR top. My opex RSI data does not exist as there is not an easy way to measure it given the length of the opex period, but we know the following months over the last few years had SPY RSIs above 70 at some point during the opex period

  1. June 2014 – Minor top post opex
  2. Sep 2013 – MAJOR TOP on Opex Thursday
  3. July 2013 – Minor top on Wed post opex
  4. May 2013 – MAJOR TOP on Wed post opex
  5. March 2013 – Minor top on Opex Thursday
  6. Feb 2013 – Minor top on Tuesday post opex
  7. Jan 2013 – No Turn
  8. Dec 2012 – MAJOR TOP on Opex Wednesday
  9. Aug 2012 – Minor top on Tuesday post opex
  10. March 2012 – Minor top on Monday post opex
  11. Feb 2012 – minor top post opex
  12. Jan 2012 – minor top post opex

So a turn is due, but it is likely to just be a minor one given that there has only been 3 major tops in 12 instances since Jan 2012

NO MDY Hourly Buys in at least 30 days going in to opex

It has been 34 days since we have had an hourly buy signal in the MDY – the record is 82 days, so the persistent bull can persist for quite some time… but I thought I would look to see what occurred during the opex periods for these extended runs higher. (I have noted the end date and the total number of days between buy signals)

  1. 3-July-14 (50 days) – June 14 opex was an unexpected minor pullback – just a minor top on the Tuesday post opex for 2 days and 24 pts
  2. 7-Aug-13 (49 days)   -July13 opex was just a minor pullback from the Wed post opex for 3 days and 23 pts
  3. 20-Feb-13 (55 days) – Minor top on the Tuesday post opex – declined 46 pts in 7 days
  4. 27-Dec-12 (44 days) – MAJOR TOP the Wednesday of Opex week – declined 70pts in 9 days
  5. 18-Sep-12 (47 days) – Major topped right before opex and declined in to a post opex bottom
  6. 5-Mar-12 (82 days) – Jan and Feb 2012 opex was just a super minor top post opex – though the market made very little progress until the sharp sell off in early March
  7. 31-Dec-10 (45 days) – There was a Tuesday to Thursday 15pt sell off and the market bottomed on the Thursday and took off
  8. 19-Apr-10 (31 days) There was a sharp opex Thursday to Monday after opex sell off of 31pts and then we bounced for a week in to the final top
  9. 19-Mar-10 (42 days) – There was just a minor 17pt sell off from Opex Wednesday to the Monday post opex
  10. 2-Sep 09 (56 days) – Aug 09 opex – there was actually a decent pt sell off from Employment day to Opex Monday in August and then the rally was back on tilll the end of August
  11. 16-Jun’09 (34 days) The market had peaked the previous week post employment and declined in to opex. This signal produced a Wednesday to Friday bounce during opex, but this signal really came at the start of the first correction of the bul
  •  From this one study, it looks like the most likely outcome is a minor top during opex or post opex. Only two instances of major tops. But, it does point to the very high likelihood that there will be a pullback soon that will be bought.
  • The best strategy depends on the turning points and the condition of the market – overall, the next day produces the highest probability buy results – might be pre market – really depends on the turning points   – only one outlier was Aug 13

o   I will let you know if / when we get an hourly buy

MDY MFI OB for an extended period of time going in to opex

Since Jan 07, MDY has been daily OB 35 times. This rally has now tied for the 5th longest MDY Daily OB period as we have been daily OB for 18 times. The average length is 8 days and the longest was 25 days in January 2013.

Here is a look at the long extended periods – greater than 12 days that went through an opex period (Date is the start date):

  1. Feb 2011 (13 days) – MAJOR TOP on Opex Friday
  2. Jan 2012 (25 days) – Just a minor top post opex
  3. Aug 2012 (18 days) MAJOR TOP on the Friday before opex
  4. Dec 2012 (16 days) – MAJOR TOP on Opex Wednesday
  5. July 2013 (14 days) – Just a minor top on the Wed post opex

This study gives a bit more weight to a MAJOR TOP occurring during opex week

NO Dip the Week before opex

  1. Sept 2013: Bottomed in late August at the lower bollo and then rushed higher and rode the upper band until MAJOR TOP on opex Thursday (post FOMC)
  2. July 2013:   Major bottom post June opex and ran higher with just one small pullback at the beginning of the month. Inched higher during opex and did not have a proper pullback until the Wed post opex, but just for 3 days and 25 pts. Then MAJOR topped post August employment
  3. May 2013: MAJOR TOP on Wednesday post opex
  4. March 2013: Minor top on Opex Thursday
  5. Jan 2013: NO turn
  6. Aug 2012: Minor top on Tuesday post opex

While we have gotten used to the dips before opex, this study does not provide an edge for this opex.

NO Employment Turn

This one is funny, as just recently I highlighted the fact that employment has become the most consistent time for turns – and what happens – NO TURN for November employment! It is a persistent bull

  1. Sept 13 – Major top on Opex Thursday
  2. May 13 – Major top on Wednesday post opex
  3. Mar 13 – Minor top on Opex Thursday
  4. Sep 12 – MAJOR TOP on Friday before opex
  5. Feb 12 – Minor top on Tuesday post Opex
  6. Jan 12 – Minor top on Monday post opex
  7. Feb 11 – MAJOR TOP on Opex Friday
  8. Jan 11 – minor bottom on opex Thursday
  9. Dec 10 – Minor Tuesday to Thursday of opex week sell off
  10. Oct 10 – Minor top on Monday after opex
  11. Sep 10 – Minor top (post FOMC) on Tuesday post opex
  12. Apr 10 – Minor bottom on Monday post opex (opex week high was Thursday)
  13. Mar 10 – Minor opex Wed to Monday post opex sell off
  14. Apr 07 – Minor top on Monday post opex

 So in 14 instances, there were 4 MAJOR tops and 5 short sell offs that started between opex Tuesday and Thursday. The other 5 instances were minor tops post opex

 OPEX after a MAJOR Bottom during the previous opex

There have been 33 MAJOR opex bottoms (out of 94 occurrences) since Jan 2007. To look at each of those is too much work, but lets look at the last five major opex bottoms – what happened during the following month’s opex?   (note: the reason I am only looking at the last 5 is that the next 5 were during 2011 and that will not provide us with too much insight)

  1. Dec 2013 – MAJOR TOP on Tuesday post opex (but the Dec bottom was a strange one)
  2. June 2013 – Minor top on Wed post opex
  3. Apr 2013 – MAJOR top on Wednesday post opex
  4. Nov 2012 – MAJOR TOP on Opex Wednesday
  5. Apr 2012 – Sell off from early May and minor bottom on opex day

So in 3 of the 4 instances where there was no sell off prior to the following month’s opex, there was a significant opex top – just July 2013 was not a major top

A look at the V reversals that have occurred in the RUT

Since August 2012 when they first started, there have now been 12 V reversal rallies in the RUT. The longest rally was 54 days (Dec 12 to Feb 13). The next longest was 34 days April 13 to May 13 and also Nov 12 to Dec 12. Both of these 34 day rallies ended with major tops during opex.   At 14.2%, it is the biggest % change rally of the 12.   Based on looking at the V reversals, this rally is due for a pause, if not a fairly sizeable pullback.

In fact, in looking at the V reversals, the RUT did only one of two things when the V reversal ended – it either major topped (See Sep 14 or May 13) or it had a decent pullback and then one last short rally that ended in a much more significant top (see Feb – March 14, Dec 13 –ä Jan 14, Sept 13, July – August 13)

WHAT is the most likely day for an opex turn?

In the last two years, there have been 13 opex top turns (minor and major)

  • Opex Tuesday – Twice Dec 12 and May 14
  • Opex Wednesday – Once July 14
  • Opex Thursday – Once – Mar 13
  • Opex Friday – Twice – Mar 14 and Sept 14
  • Monday post opex – once Nov 14
  • Tuesday post opex Five times (Feb 13, July 13, Jan 14, Apr 14 and June 14)
  • Wednesday post opex – once (May 2013)

REVIEW of November research

Remember my study “SPX Traded below the 200 day MA in October – what happened in November?”

We are left with just one analog now:

  • All month rally till mid to late month stall – 3 instances

o   1999 (stalled on 18th), 2004 (stalled on 12th) and 2005 (till 23rd – Wednesday before Thanksgiving

November 1999

  • The market paused again on 5-November after hitting the upper bollo, but again just consolidated till the 10th of November before one last surge
  • This final surge stalled on Opex Thursday, the 18th and the market did nothing for a week until a sharp down day on Tuesday, the 30th of November brought the SPX to its 20 day MA
  • The market then had a sharp rally till Dec 3rd before having one last pullback before it roared higher and closed at the highs for the year on 31-Dec

November 2004

  • The first pause to the rally occurred after an 8 ½% rally occurred on 12-Nov
  • The market then stayed in a tight less than 2% range until December 1st when it hit the 20 day MA and briefly rallied out of the trading range before one last pullback and then a rally in to the end of the year

November 2005

  • November – all month rally till just before Thanksgiving
  • November was simply a ride of the upper bollo band with virtually no substantive pullbacks until a minor top was reached on Wednesday, November 23rd, the day before Thanksgiving

o   The market then pulled back 1.7% till December 1st – then a trading range occurred for most of December

A look at a some more obscure things that have come up

Fed study:

WE FINALLY got the Fed chair pullback that was expected more in Q2 than Q3. The Yellen initial rally was longer (230 days) than any other previous Fed chair. Interestingly, the correction in the DJIA was exactly the same as the one for Bernanke – 8.6%. Yellen’s lasted 26 days while Bernanke’s was 34 days. What happened in the opex post that low – ie for Bernanke – July 2006? Alas, the sharp initial rally in June 2006 ended in early July and the June lows were re-tested, so there is no comparison there.

(The following were noted by Ryan Detrick and I decided to go take a look)

” $SPX closed at a new all-time high 5 straight days. Did it in May ’13 also. $SPY”

We major topped on the Wed post opex ” Incredibly, $SPX hasn’t been down 4 days in row in ’14. Since ’50, no year has ever gone a full calendar year without this happening. ” ” It is November and $SPX hasn’t been down 4 in a row in ’14. Since ’50, previous best start a year was Aug ’97. $SPY”

  • What happened in Aug ’97? We topped in early August and fell all month

November 2014 Employment Turning Point (as of cob on Thursday, November 6th):

In my November preview, I stated the following about November employment:

  • While some significant moves have occurred– there does not seem to be a real edge. Other than 2007, we have rallied in to the number with the market making bottoms during the week before the number in 2008 (Thurs), 2009 (Monday), 2011 (Tuesday) 2012 (Tuesday with futures – due to the market being closed by Sandy) and 2013 (Thursday before). In 2010, there was a dip on the Monday before, but the noticeable pullback lows had been made previously in October.

Tuesday’s pullback was pretty miniscule given the rally– but with the low below Friday’s low, it did qualify as a pullback pre employment (just barely), so now we are rallying in to employment (as we almost always do….)

Given the consistency of the employment turns, there is now an fairly high probability of a at least a minor top and at a minimum (based on the November analysis) a three day pullback. (though I will NEVER say NEVER with regard to a possible rally continuation …. It is just a very low probability occurrence)

I have covered in the details below for all of the supporting evidence for a potential top. In summary, they are:

  • Recent employment reports – we have turned at every employment report in 2014
  • Current conditions – reasonably extreme
  • November tendencies both since 2007 and also for bottoms below 200 day MA in October
  • Tendency to fall during the week post employment / pre opex since Nov 2013

The only question is when?

  • Did we top at Thursday’s close – (possible, but very rare – July 2011’s MAJOR TOP is best analog for that),
  • do we top at Friday’s open (I have noted below a few instances of this occurrence), do we top at Friday’s close (November 2010 and July 2014 are good examples)
  • or do we wait till next Monday or Tuesday (see June 2014 as a recent example)

Bottom Line      (almost a repeat of what I wrote in September)

Ultimately, THE trade all of this year has been for the market to pull back the week after employment and then rally strongly in to opex. This is what is most likely to happen, based on history and the technical position of the market – but a lot of things that SHOULD have happened in this persistent bull market (like an August opex turn) have not happened. (and I am always needing to remind myself that despite the historical evidence, it is always dangerous to under-estimate this persistent bull….)

Still at least a minor top and pull back is due – the primary question is when and at what level   – those questions will be answered soon……

Have a good weekend,

-D

Recent employment reports

The Employment report has now become the most consistent turning point in 2014 (WATCH me JINX that fact by stating it – but that is the current state of play)

  • Oct 14 – Major top (157 pts) on Monday after
  • Sept 14 – Minor (32 pts) top on Thursday before
  • Aug 14 – Minor bottom (27 pts) on employment day
  • July 14 (pre holiday) Minor top (32 pts) on employment day
  • Jun 14 – Minor top (29 pts) on Monday after
  • May 14 Minor top (31 pts) on employment day
  • April14 – MAJOR TOP (84 pts) on employment day
  • Mar 14 minor top (45 pts) on employment day
  • Feb 14 – MAJOR BOTTOM (160 pts) on Wednesday before employment
  • Jan 14 – minor top (29 pts) on LATE employment day

November employment reports

Except for 2010 and 2007, we have dipped before the report and then rallied in to it. As we have fallen in to opex or the end of November, every year since 2007 EXCEPT for last year – 2013 – here are the dates for each year that we started moving lower pre or post employment:

  • 2007 – Wed before (Oct 31st)
  • 2008 – Monday after – Nov 10th
  • 2009- Opex Monday – Nov 16th – but quite oversold bottom the Monday before pre FOMC.
  • 2010 – Friday’s close (but did not fall till late the following week) – November 5th
  • 2011 – Tuesday after – November 11th
  • 2012 – Topped on employment day (which was the 2nd ) – but then bounced for the elections and topped on election day – Nov 6th then fell till opex day
  • 2013 – just one SHARP down day for a late employment report on Thursday, 7-Nov

November Tendencies

Per my November preview on bottoms below the 200 day MA, we are still left with 3 possibilities:

  • Rally with a pullback from approximately the 6th to the 12th (dates vary a bit – 5 instances
  • Early month peak and then fall to opex or later – 3 instances
  • All month rally till mid to late month stall – 3 instances
  • 1990 (3 days from the 6th), 1992 (3 days from the 3rd) , 1997 (5th to the 13th), 1998 (6th to the 12th) and 2002 (6th to 13th)
  • 1987 ( peaked on 6th and fell till 4-Dec) 2000 (peaked on the 6th and fell till 30-Nov) and 2008 (peaked on 4-Nov and fell till 21-Nov)
  • 1999 (stalled on 18th), 2004 (stalled on 12th) and 2005 (till 23rd – Wednesday before Thanksgiving

Current Conditions

WOW – Highest recorded daily MFI (94) pre employment since Jan 2007…. Alas, does not seem to mean much.

  • We recorded 89 in June (minor top on Monday after),
  • 82 in March 2010 (rally continuation),
  • Sept 07 – 81 had a huge sell off (gap down and go) – but bottomed on the Monday after.
  • June 07 – 81 saw a MAJOR Top on employment day and a 53 pt pullback
  • Feb 13 – 80 – saw a minor top on employment day and just a 19pt pullback

BUT, the daily RSI of 74 suggests more caution is needed…

  1. June 14 (79 RSI) – Minor top on Monday after
  2. Nov 10 (78) Major top at the close and a fall in to opex
  3. Jul 11 – THE SUMMER Top on the Thursday before (just after the end of QE2???)
  4. Aug 13 (75) – Major top at the employment day close
  5. Mar 14 (73) – Minor top om employment day and a 45 pt pullback for a week

Three 70 + daily RSI readings in Jan 11, Feb 12 and Sep 12 did see rally continuations…. (there have been a total of 13 70+ RSI readings – out of 95 reports since Jan 2007 – so 10 tops (3 of them major) and 3 rally continuations)

TREND Day higher in MDY on day before employment

I have TOO MUCH data…. 882 10 minute sell signals since the bull began…. So here is a quick scan on this one:

  1. June 09 – opened higher, but down slightly on employment day and the Monday after but then MAJOR topped just slightly above employment day highs on Thursday after and we were down till early July
  2. Sep 09 – Bottomed day before and we were off….
  3. Jan 10 – MAJOR TOPPED on the Monday after (late employment report)
  4. Sep 10 – Rally continuation – like Sep 09 – bottomed earlier in the week and we were off….
  5. Nov 10 – MAJOR TOPPED at the close on employment day and fell in to opex
  6. Mar 11 – MAJOR TOP at the open and then fell till March opex
  7. Sep 12 – Rally continuation for another week until the Top for the year on the following Friday
  8. Nov 12 – Huge Gap up failed and we fell for the day, but election was following week and we bounced on the Monday
  9. May 13 – Rally continuation – just a powerful move till post opex
  10. June 14 – minor Topped on the Monday after

Bottom Line – 10 instances – 3 tops at the open / near the open, 3 tops on employment day or Monday after and four rally continuations…. Not a strong edge

HOURLY OB on The Thursday before employment

  • LOTS of signals with either BIG winners or BIG LOSERS – not one to take –
  • 2 Flat
    1. Feb 2012 – just a pullback on the day before we soared the next day
    2. Aug 2013 – Market did not top till the close on the Friday and then fell the whole month of August
  • 5 winners
    1. June 2010 – Closed MFI OB and the number was a MISS and we went down till the Tuesday after
    2. Mar 2011 – peaked at the open on employment day and headed down in to opex
    3. Nov 2011 – a winner due to market volatility but market did not top out till the following week
    4. Nov 2012 – Peaked at the open on employment day and then headed down
    5. May 2014 – Post FOMC – we got pretty OB – had a sell off, but then rallied in to employment
  • 6 losers
    1. Nov 2010 – Did not top till the close on Friday
    2. Dec 2010 – had bottomed earlier in the week and we were soaring
    3. Feb 2012 – Soared BIG on the Friday
    4. Mar 2012 – really kept going until post opex – OUCH
    5. Sep 2012 – ECB cut rates and the market soared for another week
    6. June 2014 – RALLIED Hard till the Monday after

 

PRE OPEX TURNS!!!

THIS is THE MOST IMPORTANT THING TO REMEMBER about 2014!!!

We have been pulling back and bottoming the week before opex week consistently since October 2013! These bottoms have been generally on the Thursday before opex week (see the August low, see the July low before opex, the June low post employment, etc…) But it was Opex Monday for September and just a one day 45pt low to high bounce on the Wed before opex in October.

The lows made before opex – this really is something that is new; and it is partly due to the fact that we are consistently getting employment turns. After seeing a blog that consistently highlighted the Thursday / Friday the week before opex as pre opex turn times, I went back to check the records and found nothing that remarkable. It occurred 7 times out of 12 in 2012 and 5 times out of the 12 months in October with 1 Wednesday in 2013.   Then we had lows before opex week (and gap ups on opex Monday) in March and April and May for the RUT (but it was a Wednesday low for the SPX) and it got me thinking that maybe, this is yet another thing I need to track, so here goes.

Watch for lows (currently the edge seems to be much more with lows not highs) on the Thursday or Friday before opex and then a rally in to opex. I have highlighted the data from June 2013 – but really the Wednesday before low in October 2013 was the first time we started to consistently see the low turns occur pre opex.

 

November 2014 Turning Point Preview (as of close of business on Monday, November 3rd, 2014 ):

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

Here are the November highlights: 

Employment

  • While some significant moves have occurred– there does not seem to be a real edge. Other than 2007, we have rallied in to the number with the market making bottoms during the week before the number in 2008 (Thurs), 2009 (Monday), 2011 (Tuesday) 2012 (Tuesday with futures – due to the market being closed by Sandy) and 2013 (Thursday before). In 2010, there was a dip on the Monday before, but the noticeable pullback lows had been made previously in October.

 Opex

  • Definitely gaining a reputation for major turns – especially bottoms lately – though that was not the case in 2013. Pre 2011, we made a turn during opex week 2007 (Wed – top), 2008 (Fri – Bottom), 2009 (Fri – low), 2010 (Tues – bottom). 2011 was the MAJOR sell off in to the post Thanksgiving low. 2012 was a MAJOR OS Daily bottom on opex Friday.   While 2013 broke the trend with just a minor 25pt pullback from the Monday post opex

 Thanksgiving

  • Thanksgiving is an excellent turning point, particularly for lows – though there was no turn in 2012 (due to the oversold opex day bottom) and there was just a minor top on the Friday after Thanksgiving in 2013 – prior to the last two years, it had a very strong turning point edge
  • WATCH for lows on Monday after or if a panic, the Friday after…. Has had some tops… but the first few days of the week after are the keys. Monday after lows – 2007, 2008, 2010. Friday lows 2009 and 2011. Also, occasional situation where the low is later, but still in November – (see 2000, 2001 and 2005)

 Special Research

SPX Traded below the 200 day MA in October – what happened in November?

 October confirmed its reputation for volatility and also went an extra week beyond the normal October bottoming time while fairly closely paralleling the bottom in October 2000. Since then, the SPX has experienced the most powerful rally seen from any and all of those October lows below the 200 day.

There have been 13 drops and bottoms in October below the 200 day MA since 1987. Every year is different, but 5 of those 13 years saw declines in to late November while the other 8 saw decent to very strong rallies during November. While it is never easy to characterize every month, there appear to be four different characterizations for these 13 years.

  • Rally with a pullback from approximately the 6th to the 12th (dates vary a bit – 5 instances
    • 1990 (3 days from the 6th), 1992 (3 days from the 3rd) , 1997 (5th to the 13th), 1998 (6th to the 12th) and 2002 (6th to 13th)
  • Early month peak and then fall to opex or later – 3 instances
    • 1987 ( peaked on 6th and fell till 4-Dec) 2000 (peaked on the 6th and fell till 30-Nov) and 2008 (peaked on 4-Nov and fell till 21-Nov)
  • All month rally till mid to late month stall – 3 instances
    • 1999 (stalled on 18th), 2004 (stalled on 12th) and 2005 (till 23rd – Wednesday before Thanksgiving
  • Late October peak and then late month bottom – 2 instances
    • 1994 (Wed, the 23rd before Thanksgiving) and 2011 (Friday after Thanksgiving

 Other points

  • We have not yet had a post FOMC turn – it is possible that there will be no turn as the V reversals have quite frequently not turned at the first turning point (see Feb and Aug 2014) – but it is quite rare for there to be NO FOMC turn (last time was June 2008 ). Even late FOMC turns are quite rare – April 2012 and April 2011 saw late post FOMC MAJOR tops on the Tuesday and Monday respectfully, while June 2014 saw just a minor 24 pt top on the Tuesday post FOMC / post opex
  • Post the ending of QE1 at the end of March 2010, the market did not top till April 26th. Post the ending of QE2, the market had already topped, but it made the post QE high on the Thursday before employment on the 7th of July.
  • MID and RUT have made their extremes early in the month for most of 2014 and the monthly candlestick colors have been alternating since June.

 Bottom Line

While there is much mention in the blogosphere about November being a month for rallies, particularly in election years, the evidence is mixed at best. The price action from Monday, the 1st through Monday, the 8th will most likely be key in determining the primary market trend for the month. Except for 2013 (and 2009 for different reasons) the best November strategy after a late October rally since 2007 has been to wait until at least opex Tuesday (2010), if not the Monday post Thanksgiving (2007) to be a buyer.

This was not the case in 2013 (November 7th pre employment low) and there are eight (out of 13) instances from the special research regarding October bottoms below the 200 day where buying the first November pullback lasting at least 3 days was the best strategy.

The persistent bull is alive and well, but it has tended to turn early in the month before or after employment for a pullback of varying magnitudes, so being flexible should serve one well in November.

-D

FOMC Turning Point Preview for October 2014   (as of mid morning on October 29th, 2014):

This is the second and last FOMC meeting of the year that does NOT have any other turning point near it. The other one was in January, where we saw a brief, essentially one day pause in the first sell off of the year.

Until 2013, October FOMC always saw major turns of at least 50pts. Last year, there was only a brief stall from the V bottom reversal that occurred during the second week of October. There is also the mid term election next week to consider.  I have not compiled any data on mid term elections, but the notes I have seen in the blogosphere seem to hint that there is generally a rally in to the election – this is what happened in 2012 – then there was a sell the news sell off – but midterms are different than presidential election years, so I really can not attempt to provide any insight on something I have not studied.

Below, I have included the usual historical FOMC information.

From my perspective, we are still quite closely tracking the two historical analogs that I identified in my opex preview that suggested a strong move below the lower bollo band – as we saw two weeks ago – could produce the opex bottom – as did occur.  The two analogs that suggested that possibility were Aug 2007 – the market went on to new highs in October 2007 with just a few pullbacks – and October 2000  (also an opex Wednesday low) – which had a strong rally back up to the 200 day MA and right below the upper bollo band that ended on the day before election day in November 2000.

With respect to V bottom reversals, the persistent bull has quite frequently ignored at least the first turning point it has encountered or if it has not ignored it, the pullback has been minor. The last V bottom reversal occurred in early August 2014 and there was (historically surprising) no opex turn, nor was there a turn for the Jackon Hole Fed conference. Each of this year’s V bottom reversals (Feb and August) stalled or ended early in the following month around the employment report. This was the same with the June 2013 V reversal bottom that stalled post July opex and ended post the August 2013 employment report.   (The October 2013 V bottom reversal stalled post the Oct 30th FOMC meeting)

In fact, the employment report in 2014 is now the most consistent turning point – normally it is opex week.

Bottom Line

The persistent bull must be respected. October FOMC has a history of post FOMC major turns, but the market in recent years also has a habit of ignoring the first turning point after a V bottom reversal or, at best, a minor top and pullback of 25 to 35 points over a few days occurs.

For now, I am in observation mode, as I can provide valid historical support to both sides of the market…. But I will say that I am following the 2000 analog quite closely as it is this year’s and that year’s October opex bottoms are so similar.

Ever interesting,

-D

FOMC

Generally, FOMC meetings are times for turns – except for occasionally the January meeting

  • The window of opportunity for a FOMC inspired turn point is from 2 days before to 3 days after.
  • In 2014, except for the September opex top and the Monday before April opex bottom, all of the Fed meetings have seemed to have had reasonably minimal turns. The only turn that was within one day of the Fed meeting was the day after top in January (part of the large Jan early Feb sell off)
  • As it sticks in my mind, I will also highlight the October 2007 meeting which saw a strong close on the FOMC day after a strong post opex bounce, but that close was simply a test of the early October highs and the market turned down the next day and fell relentlessly all of November 2007

October / November FOMC meetings

An FOMC meeting where the date swings around between October and November, except for 2012 (possibly due to Hurricane Sandy) and 2013 (delayed employment report) – there have been MAJOR TOPS and BOTTOMS around this meeting – which is NOT what one would expect

    1. 2007: MAJOR TOP on FED DAY – this was from a BIG Bounce post opex and the re-test of the all time high and then down we went!
    2. 2008: Incredibly volatile, but we bottomed the Monday before and soared in to the election before falling back
    3. 2009: (Nov meeting) AGAIN a MAJOR BOTTOM on the Monday before – just like the year before and then we SOARED
    4. 2010: (Nov meeting) Bernanke op ed manipulation – we SOARED post Fed and topped out at the close on employment day
    5. 2011 (Nov meeting) – We had a HUGE move down on the Monday and Tuesday before, but bottomed on the Tuesday before and had a MAJOR 65 point bounce till we topped post employment
    6. 2012: Hurricane Sandy may have messed this up – we topped on Opex Thursday and fell through the Fed meeting though not significantly and we bottomed on the Friday and then bounced – this may be the first October meeting that the FOMC did not seem to have an impact – it was much more about the opex top and Sandy
    7. 2013 – Minor top – just a minor pullback from Fed day till two days after as the market was in a difficult trading range

CURRENT CONDITIONS

While I have seen quite a few comments on the web about how OB we are right now, from a historical perspective, the SPY’s daily RSI of 66 and MFI of 60 are not particularly extreme. We are hourly OB, but the day before FOMC hourly OB sell signals do not have a particularly strong record.

Opex preview for October 2014  (as of cob on Tuesday, October 14th):

There is only one recent instance (2012) since 2000 where we have either not rallied in to October OR we have not bottomed on either one of the first three trading days of October (2009 and 2011) or during the latter part of the second week of October (2013.)   Both of those historical turn times produced nice bounces this month, but nothing lasting more than two days…. So now we have October opex…. It has NOT produced that many major bottoms, as there have been few October pullbacks that have lasted this long…. But there have been a few:

  • October 1987 – Tuesday post Opex MAJOR bottom
  • October 1999 – Monday post opex (last low of the year)
  • October 2000 – a rare Opex Wednesday bottom – 25 points below lower bollo – not the low for the year, but good for a bounce in to early November (this is one to remember!)

Just not a lot to go on for October historically right now. The possibility that we are dealing with another September high for the year like in 2012 is again historically RARE, as we had not seen such an occurrence since 1978 prior to 2012.

While I prefer to be a contrarian, I must agree with most of the quantitative / statistical blogs that a bounce is due soon – is it the final bottom for the year? – probably not, as all of the significant bottoms that we have had since 2010 have taken a few months to form. What is interesting, is that since 2007, there really have only been a few instances where we have fallen SO substantially from the previous month’s opex. The detailed research is below – the key thing to watch for is either a gap down and then sharp, panic move lower (for Opex Wednesday that would be a move below 1850 by something like 11:30am) or just relentless selling that will end late in opex or early in the post opex period.

Bottom Line:

We are dealing with VERY rare market conditions here – the volatility and lack of conviction remind me of 2011. A bottom and bounce for a week to ten days is likely (FED to the rescue??? – FOMC meeting on 28-29th of October), but there needs to be more fear or extremes seen for the proper conditions to be in place for a really good low and a bounce (like was seen in Aug 07 as a good analog) to occur

If we do not get that, then we still need to be on the watch for two possibilities

  1. October 2012 analog – a further bounce that tops out late in opex week or possibly even post opex and then further lows
  2. Continued move lower with failed rallies (like Tuesday) until we bottom on opex day (Nov 2012, May 2012) or early next week (May 2010, May 2011 or Oct 1999)

While there is occasionally no opex turn during rallies (See Aug and Feb 2014), there has ALWAYS been an opex turn – or at least a decent bounce when we are falling in to opex.

Super interesting right now,

-D

STEEP FALLS from previous month’s opex high

In terms of just SPX points, the move from the September opex high to last Friday’s close was the 5th largest move since 2007. Interestingly, from where we are right now (lower lows in opex week), there are only four relevant analogs – those four opex weeks had two things in common – either a gap down and run for 20 plus points below the lower bollo (ie. a real opening panic…) OR a late in opex week low with just relentless selling…

Here are the 10 largest moves and what happened during the opex period

  1. Oct 08 (395 pts) – Huge bounce from Friday before opex until Opex Tuesday, but then market re-tested lows later in October and found final bottom for the year in November opex
  2. Nov 2008 (189 pts) – Volatile week – MAJOR bottom on Opex Friday
  3. July 2008 (132 pts) – MAJOR Bottom on Opex Tuesday – just relentless selling until a gap down and run to a round number (1200) stopped the rout
  4. Aug 2011 (115 pts) – had already bottomed the previous week – tried to rally during opex week, but peaked on the Wednesday and fell hard to a Monday after MAJOR bottom
  5. Oct 2014 (114 points) – ???
  6. Aug 07 (108pts) – Some significant similarities with the all time high peak in the previous opex and then a fairly relentless fall with just a few bounces. Had a GAP DOWN and run lower of almost 30pts on Opex Thursday, but bottomed and reversed massively – Opex Thursday MAJOR BOTTOM
  7. Nov 2012 (84 pts) – Very MFI OS – similar to MDY right now – Major Bottomed on opex day after a two plus month correction
  8. June 2008 (81 pts) – Had MAJOR topped for the year in May…. Bounced briefly for 4 days in to June opex… but then MAJOR topped on opex Tuesday – not applicable here – unless there is a bigger and longer bounce
  9. April 2014 (76 pts)   Had topped on April employment and bottomed on the Friday before thanks to the Good Friday holiday effect – no applicable
  10. Feb 2010 (71 pts) – Had peaked post Jan opex and bottomed on Feb employment and then started rally in to Feb opex (not applicable)

OTHER OPEX POINTS to Note

  • Monday post opex is the highest probability day for an opex turn. Oddly, we have not seen one this year as the Tuesday after Opex (Jan, Apr and June) have been the most regular turn days followed by Opex Day (Sept and March)
  • SPY is not yet daily MFI OS – if we do get there before the end of the opex period, this is a VERY good buy set up.
  • The SPY daily stochastics were the lowest they have ever been on an opex Tuesday since 2007. Other instances May 2012 (opex day minor bottom), Dec 07 (Opex Tuesday bottom), Nov 2012 (Opex day bottom), April 08 (Opex Tuesday bottom), Feb 09 (Monday after minor bottom), Nov 2010 (Opex Tuesday bottom), Nov 2007 (Bounce and MAJOR TOP on Opex Wednesday)
  • While low weekly stochastics indicate a bottom and bounce is near – last week they were not that low…. but with this week’s current price action, we are getting in to the zone where we typically have seen a bottom and a bounce.

October Opex weeks – NOT RELEVANT FOR THIS week

Except to highlight that POST OPEX is the usual turn time….

  • October opex has become a time for tops – some major and some really minor (2013 in particular) Most times the turns are post opex except for the tops on opex Tuesday in 2008 and opex Thursday in 2012. The key is really whether there has been a major turn in either the first or second weeks of October.
  • Tuesday has quite frequently been the day for a weekly extreme, but this did not occur in either 2012 or 2013.
  • HOURLY SIGNALS had been strong winners until 2013 Except for the Tues hourly sell signal in 2012
    1. 2007: A Minor bottom on the Monday after and then a 9 day bounce in to the MAJOR FOMC top
    2. 2008: A HUGE Friday before opex to opex Tuesday bounce – but that was the high and we fell in to the end of October
    3. 2009: MAJOR Top on the Wednesday after and then fell in to November (note the Monday after was the high close and then there was a bizarre spike on the Wednesday after to make the high)
    4. 2010: A week with limited volatility – bounced in a minor top on the Monday after – but the pullback was just 1 day and 26pts
    5. 2011: After the MAJOR Bottom in early October, opex week was a tug of war that the bulls won – though we topped out the Monday after and had a 2 day 36pt pullback
    6. 2012: MAJOR TOP on the Thursday of opex week – fell for 8 days and 61 pts and then Hurricane Sandy came and stopped any further declines till the election
    7. 2013: Had delayed employment report on the Tuesday post opex – really barely had a turn, but did minor top on the employment report and pulled back 20 pts

2nd week of October – Another KEY turn time:

The end of September and early October have two distinct characteristics that are not related to the normal turning points (employment, opex, FOMC, etc…).

The first one has been covered previously – the tendency for there to be at least one strong rally in the last three trading days of September or the first three trading days of October.

The other special thing about early October that is becoming more frequent is the MAJOR TURN during the second week in October. It is the time of year for the most frequently occurring major turns that I can not assign a normal turning point to.

Three significant recent examples of the second week of October major turns are the MAJOR Low in 2013 (Wednesday, October 9th), the Major LOW in 2008 (on Friday, October 10th) and the 2007 MAJOR TOP – the all time high for many years –(Thursday, October 11th)

There is not always a turn during the second week of October, but it has occurred frequently enough that one needs to be aware of the possibility.

Overall, There have been seven significant bottoms during the second week of October since 1987 (1990, 1991, 1998, 2002, 2005, 2008 and 2013)

Tops are rarer – just three (2007, 1997 and 1989)

Here is the detail by year for Major turns during the second week of October:

  • 2013 – MAJOR BOTTOM during the second week of October on the Wednesday and then a strong rally that lasted the rest of the month (note there was NO employment report as it was delayed due to government shutdown)
  • 2008 – MEGA slide till Friday, the 10th of Oct – there was then a 204pt bounce from the Friday to the following Tuesday – opex Tuesday (low was not broken till mid November)
  • 2007 –High on Thursday, October 11th at 1576 lasted for 5 ½ years
  • 2005 – Correction that started in the summer ended on Thursday, 13th of Oct –it was last buying opportunity below the 200 day MA till May 2006
  • 2002 – Major double bottom low on Thursday, the 10th of October (the bear market low at 769)
  • 1998 – HUGE panic LOW on Thursday, 8-Oct (LTCM and emerging markets)
  • 1997 – Wednesday, 8-Oct peak and then a crash on 27-Oct (SPX down 7% on the day) with a bottom on 28-Oct
  • 1991 – Significant low on Thursday, October 10th that led to an almost 6% rally that ended in November 91.
  • 1990 – Low for the year was on Thursday, 11-Oct
  • 1989 – Peak for the year was on Tuesday 10-Oct

 

October 2014 Turning Point Preview (as of midday on Thursday, October 2nd):

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

September was an interesting month as the MID and the RUT stuck to the primary September script of a trend change early in the month and then a trending move, while the SPX and NDX chose the other frequent pattern of more of a trading range with a post FOMC / Opex top. It is interesting to note that since June, the MID and Rut have trended each month and made their monthly extremes at the beginning and ends of the month – quite rare as they have been in opposing directions each month.

So now we have the big question / dilemma for the markets – are we following the script for 2012 when we peaked for the year in 2012 in September on the Friday, post FOMC (Sept 14th) – If the top for 2014 was on opex day in September on the Friday post FOMC, it would only be the fourth September peak for the year since 1976 (1976, 1978 and 2012) or are we following the script of 2013 or many other years when we fell sharply in to October, only to bottom and rally in to the end of the year?

I have no idea which one it will be, but in this monthly turning point preview, I will highlight how the market has acted with respect to the usual turning points (employment – Friday, October 3rd, Opex and FOMC – Oct 29th and 30th).

Additionally, while I have already highlighted the tendency for the market to bottom or at least have a good rally some time from the 3rd to last trading day of September to the 3rd trading day of October, I also want to highlight the significance of the 2nd week of October, which has seen more than its fair share of turns since 1989.

Here are the October highlights:

Late September – early Octoer buying opportunity – detail has been provided previously. It is possible that the Monday, Tuesday bounce of this week was it – though that would be unusually small bounce – or we are setting up for a great employment buy?

Employment – Interestingly, October is one of the few months that does not show a real edge for the employment number – instead it appears the end of September to second week of October dynamics have a much greater influence. If it was not October, I would suggest we are definitely setting up for a GREAT employment bottom (see details below), and we did have one October employment bottom on employment day in October 2009 – but there is also the history of the major turns we have seen during the second week of October – post employment.   A very good low is near – it is just a question of when and the history of October provides two distinct possibilities.

 Second week of October – detailed in a separate comment – significant history of MAJOR turns during the second week of October with the last MAJOR BOTTOM occurring in 2013 on the second Wednesday – October 9th, 2013.

pugsma.wordpress.com/denalis-turning-points/

Opex   October opex has become a time for tops – some major and some really minor (2013 in particular) Most times the turns are post opex except for the tops on opex Tuesday in 2008 and opex Thursday in 2012. The key is really whether there has been a major turn in either the first or second weeks of October.

FOMC Another one where the date swings around between October and November, except for 2012 (possibly due to Hurricane Sandy) and 2013 (delayed employment report) – there have been MAJOR TOPS and BOTTOMS around this meeting – which is NOT what one would expect

Bottom Line

With the sharp break down this week, it is clear October will not disappoint as a turning point month. The great challenge this month more than many others is the timing of the first low of the month – will it come with employment (the second or third trading day of the month) or does the market wait until the second week of October (like in 2013) and then rally sharply in to Opex.

Those really are the only two scenarios for the month. Once we know the answer, we can determine what opex and the FOMC might bring later in the month.

Ever interesting,

-D

 Details on employment

As I have been sick this week, I have been less productive in my research time, so this will serve as my October employment turning point preview as well. Apologies.

October Employment

  • NO REAL EDGE for the # – more of an October thing
    1. 2007: THE MAJOR TOP on the Thursday after – but not employment related
    2. 2008: FALL continued – it was UGLY for another week
    3. 2009: MAJOR BOTTOM on the DAY
    4. 2010: Rally continued – nothing could stop it
    5. 2011: MAJOR BOTTOM on the TUESDAY BEFORE
    6. 2012: Minor top on employment day and a weeklong pullback
    7. 2013 – delayed report – thanks to the government shutdown this report occurred on the Tuesday post opex and is probably not relevant – but we minor topped near the open, but just pulled back 20pts

Current Conditions

Assuming we close around SPX 1935 or lower today, the SPX will be at a very low pre employment RSI – not unprecedented – in fact, in August 2014, the SPX had a similar sub 30 daily RSI, but still historically very low. The RUT and MID bottomed the next day and rallied the rest of August while the SPX bounced 27 points from the employment day low and then made a final low on Thursday, August 7th.   We have only had 5 sub 30 RSI readings on the day before employment since 2007 – they have all bottomed between employment day and the Tuesday after.

Here are the occurrences:

  • Aug 2011 – (17 RSI) – quasi crash on the Monday after – bottomed on the Tuesday after and bounced in to Aug opex
  • Jul 2008 (21 RSI) – brief 27pt bounce and rally for 6 days from employment day, but then fell hard in to Opex Tuesday low for the summer
  • Aug 2014 (27 RSI) – Bottomed on employment day and bounced 27pts till the Monday and then fell to the summer low on Thursday, August 7th
  • Mar 09 (28 RSI) – Bottomed on employment day – THE BEAR market bottom!
  • Mar 08 (29 RSI) – bottomed on the Monday after and bounced 62 points in 3 days, but then fell in to the Bear Stearns bottom on Opex Monday.

 

End of September / early October 2014 Turning Point Preview (as of mid day on Friday, September 26th ):

A couple of points before I cover the only quarter end set up that I currently know of as being significantly reliable.

  • September has played out as more of a trading range with an early month turn, a turn on the 15th (one trading day outside of the predicted time range) and then a post FOMC turn
  • The BIG question is whether the SPX 2019 high is the high for the year – oddly the Sept ES futures settled at 2022 – despite the high in the index being 2019.26. As noted in the September preview, 2012 is the only year we have seen a September high for the year since 1976. In 2012, the high was made on the Friday post FOMC – so far the high for the year is on the Friday post FOMC. I am not a long range forecaster – just thought it was interesting
  • While the Monday of opex week low made me less certain (apologies for that), all of the primary quad witch (with FOMC) tendencies were hit last week. Specifically,
    • Major turn of at least 50pts
    • Primary turn post FOMC
    • Rally in to the FOMC and the press conference
  • Even the Hourly Buy on the Monday gave a hint that we would see weakness post opex (though not this much weakness)

In my September preview, I noted the following:

End of September / Early October: One other little know occurrence for September is the regular occurrence of either bottoms or at least one large up day that occurs on one of the last three days of September or the first three days of October.  Four times, it has marked a major low since 1998. The most recent one was the 2011 low on the 2nd trading day of October.  In 2013, there was a 23pt SPX bounce from the 30th of Sept to the 1st of October.

While it is possible that yesterday was the low, there is one exception, as we made the low in 2007 on the 4th to last trading day of September which was the Tuesday post opex that year.  The full details are below.

Bottom Line

There should be a strong bounce of at least one day and 23pts (not as much as it used to be….) in the next 6 trading days.   Given the major top on Sept opex day, there are three likely possibilities given the historical evidence since 1998:

  • Strong Bounce and then a lower low for a more enduring bottom during the second week of October (a very powerful turn time – See 1998 bottom, 2002 bottom, 2005 bottom, 2007 top, 2008 bottom and 2013 bottom)
  • Continue slide and bottom on Thursday, the 2nd (pre employment) or Friday, the 3rd.
  • 2012 is replaying itself to a certain extent and there is a bounce, but then we head lower to a low most likely around November opex

I will post at least twice next week with my October preview and also my October employment preview.

Have a good weekend,

-D

Sept – Oct

Primary Tendencies The idea is that there is at least ONE big up day during the last 3 trading days of September or the first three days of October

  • Key is simply judging the circumstances
  • For now, September opex does not seem to provide any clues as to what might transpire.
  • It works BEST after BIG down days
  • In post opex uptrends, it is generally just a nice pullback that provides the buying opportunity.
  • In post opex downtrends, it can be either the bottom or will at least produce a strong bounce that will lead to a stronger bottom later in October.
  • there is one exception, as we made the low in 2007 on the 4th to last trading day of September which was the Tuesday post opex that year.

 

Largest Moves
  • Major Lows in 1999, 2003, 2009 and 2011 – marked a significant turn
Smallest moves
  • Day move – 2008 – still worth 60 SPX points, but needed to sell on the day
  • 4 times since 1998 – it has been a one day move
  • Smallest Price move – 23 points
Recent Tendencies
  • 2009, 2010 and 2011 – ALL have had low on the 2nd day of October and there have then been very large bounces!
  • 2009 and 2011 had low stochastics – near 30
  • 2012: Bottomed on the 3rd to last day of September on the Wed post opex we then bounced 42 pts to October employment Friday
  • 2013: Just a 23pt bounce from Sept 30th to Oct 1st and then downtrend continued for another 8 days

 

Since 1998

Sep – 3rd to Last day**2007 4th day
  • Five times
  • 1999, 2000, 2004, 2007 and 2012
  • Bounces were all decent, but they were NEVER the last low of the year and in 2007 (4th to last day) – it was a MAJOR TOP shortly thereafter
Sep – 2nd to Last day
  • Twice
  • 2001 and 2005 – both were small dips after September opex or post opex lows
Sep Last day
  • Three times
  • 2002, 2003 and 2008
  • 2002 and 2008 were just brief bounces before MAJOR bottoms on 10-Oct
  • 2013 was a brief bounce till Oct 1st before major bottom on Oct 9th
  • 2003 was the last low and we rallied in to opex
Oct 1st day
  • None
Oct 2nd day
  • 4 times
  • All last lows of the year – 2006, 2009, 2010 and 2011, but only 2009 and 2011 were significant downtrend lows.
  • Stochastics headed down but no other clue
Oct 3rd day
  • Once
  • 1998 – just a quick 50 pt bounce before the MAJOR LOW on October 8th

 

Pre Opex and Pre FOMC preview for Sept 2014    (as of cob on Monday, Sept 15th):

As many of the points I will cover in this preview have already been covered in previous previews which can be found here   (note the June opex preview is particularly relevant)

https://pugsma.wordpress.com/denalis-turning-points/

I am just going to touch on a host of relevant considerations for this week’s FOMC meeting and the September opex period:

Here are the key points:

  • Quad opex week almost always produce major turns with 50 plus SPX pt moves (though it did not do it in June or March 2014 which was a surprise)
  • With FOMC during opex week, the primary turn generally occurs post FOMC (but we did top on the day before FOMC in June 2013)
  • There is an FOMC press conference on Wednesday that should help produce some volatility – we generally rally in to the press conference
  • Since December 2013, opex week has not trended. Instead, almost every opex week has produced at least one mis-direction move of some significance before the primary turn occurred or the primary trend re-asserted itself. (note: In August there was a quick spike down on Opex Friday, in July, it was the Wednesday to Thursday pullback and June was the one month since December that did not have this misdirection
  • The market may have changed in character – though until there is more evidence, the persistent bull is still alive – still, the change in character is the new low for this correction to start off opex week – the last two times we did not rally in to opex week were August 2013 (post opex bottom) and April 2013 (Opex Thursday bottom)
  • FOMC provided NO edge in August – which was a surprise – when FOMC is during opex, we almost always rally in to the FOMC – last time we did not was March 2011 when we bottomed on the day after the FOMC.
  • Per my September preview, we either have trended from early in the month till post FOMC / post opex or we change direction between Sept 9th and 12th – as we made a lower low on the 15th, if this September characteristic is to hold, we may continue lower in to at least late Wednesday or Thursday
  • Per my comment on Monday, we had an hourly Buy signal on opex Monday, except for January 2014, these have indicated the opex turn will be a bottom on Opex Thursday or later
  • The suggested difficulty that the SPX has had with the initial attempt to surpass a round number has come to pass with the current pullback. The pullback can continue, but at some point in the reasonably near future, the market should make a successful attempt to clear the 2000 level for at least a period of time (see the study in the Denali section)
  • Thursdays have been THE OVERWHELMING turn day recently (The most recent top was a Thursday, as was the bottom on August 7th) – except for the opex week misdirection with a Wednesday top in July (and a Thursday bottom) and the Tuesday post opex top in June (with a Thursday bottom) – Thursdays have been THE turn day with 8 of the last 12 turns occurring on a Thursday since the opex Thursday bottom in May.

Bottom line:

The new low on opex Monday for the current short term correction is something we have not encountered in over a year, so one should be more cautious until the market reveals its intentions. The market can rally at any time this week, as we generally rally in to the FOMC. If we do not rally before, then a bottom and strong rally from Thursday would be my preferred scenario. Though a slide in to a post opex bottom can not be ruled out based on the Hourly buy signal on Opex Monday study.

If there is a bounce before Thursday, then it is possible the opex low is in and we have made a pre FOMC turn. If that occurs, then we will just need to evaluate the technical and the price action later in the week or post opex to see if there is any possibility of an opex week misdirection or a post opex turn.

Overall, until there is much more evidence against it, we must presume the persistent bull is alive and well and it is just using the middle part of September to shake out the weak hands after the strong move in August that surprisingly failed to have an opex turn or a late August pullback.

Ever interesting,

-D

 

September 2014 Employment Turning Point (as of cob on Thursday, Sept 4th):

I was tempted to not do an employment turning point preview, but when I looked at the market this morning (prior to the futures sell off), I saw a few interesting things that I thought it would be interesting to research and then publish.

Per my September preview, September employment has seen more continuation trades thanks to late August / early September dips or tops.

Interestingly, now that there has been two months without opex turns this year, employment has been the most consistent turning point, which is rare, as opex normally provides the better edge.

Bottom Line

We are overdue a turn – at least a minor top and turn – given that we did not turn for August employment. In the past, when we have not had opex turns in the previous month, then we have had minor tops on the following month’s employment report.

Ultimately, THE trade all of this year has been to pull back the week after employment and then rally strongly in to opex. This is what is most likely to happen, based on history and the technical position of the market – but a lot of things that SHOULD have happened in this persistent bull market (like an August opex turn) have not happened. (and I am always needing to remind myself that despite the historical evidence, it is always dangerous to under-estimate this persistent bull….)

I have no idea what will happen today, but I have also noted the four instances where we have had strong sell offs in the afternoon of the day before the employment report. (see details below)

Have a good weekend,

-D

**********************************************

Current Conditions

With the SPY RSI of 67 at the close and a recent high of 75, we are in the RSI range of a minor or major employment top – generally on employment day or a day or two after. The last time the daily RSI was above 65 and we did not have at least a minor top was March 2013 – which was a late employment report prior to opex.

It is very rare for the daily SPY RSI to turn down prior to an employment report at such a high level. There were only two instances with an RSI that had turned down before employment and was still above 60:

  • Jan 2011: market was in consolidation mode after a surge on the first of the year – tested the lows for the year on the Friday and the Monday post employment before continuing higher
  • Feb 2013 – was weaker on the two days before employment – then soared to new highs on the Friday and closed strong, but then erased all those gains on the Monday before heading higher. NOTE Jan 2013 was also a month without an opex turn!

Employment Report when there has been NO Opex turn

  • Aug 14: ???
  • Feb 14 opex / March employment: Minor top on employment day and 7 day 45pt pullback
  • Jan 13 opex / Feb employment: very Minor top on employment day and 3 day 19pt pullback
  • July 09 opex / August employment: Minor top on employment day and 12 day 38pt pullback

Extended sell off day before employment day

Today’s late afternoon slide pre employment is a VERY rare event. This is only the 6th time since the bull began in 2009

  • May 2009 (late employment report): Made new highs for the rally on the day, but fell hard all day. Reversed the fall on employment day, topped near the close and fell for a week.
  • May 2010: FLASH CRASH
  • Sept 2011:   Topped on the Wed before and fell hard till the Tuesday after (post Labor Day). Market gapped down, rallied hard until early afternoon and then sold off hard again
  • May 2012: Had topped on the Tuesday before – gapped down and went – really slid until end of May opex.
  • November 2013 (late employment report) – sold off all day (SPX -23) Bottomed in the pre market and then rallied in to opex.

Thursday turns

  • Thursdays have been THE TURN day as of late with 9 of the last 11 turns on a Thursday since the May opex bottom. The last turn (amazingly!!!) was Thursday, August 7th – we are overdue one, but the longest time we have gone without a turn is 50 days in early 2013, so it does not have to happen yet.
  • The two not Thursday turns were the post employment top in June on a Monday and the July opex mid week minor top on the Wednesday (and then the opex low was the next day on the Thursday)

September reminder

As a reminder, I covered a lot of the interesting features of September in the September preview that can be found here.

https://pugsma.wordpress.com/denalis-turning-points/

 

PRE OPEX TURNS!!!

THIS is THE MOST IMPORTANT THING TO REMEMBER about 2014!!!

We have been pulling back and bottoming the week before opex week consistently since October 2013! These bottoms have been generally on the Thursday before opex week (see the August low, see the July low before opex, the June low post employment, etc…)

The lows made before opex – this really is something that is new; and it is partly due to the fact that we are consistently getting employment turns. After seeing a blog that consistently highlighted the Thursday / Friday the week before opex as pre opex turn times, I went back to check the records and found nothing that remarkable. It occurred 7 times out of 12 in 2012 and 5 times out of the 12 months in October with 1 Wednesday in 2013.   Then we had lows before opex week (and gap ups on opex Monday) in March and April and May for the RUT (but it was a Wednesday low for the SPX) and it got me thinking that maybe, this is yet another thing I need to track, so here goes.

Watch for lows (currently the edge seems to be much more with lows not highs) on the Thursday or Friday before opex and then a rally in to opex. I have highlighted the data from June 2013 – but really the Wednesday before low in October 2013 was the first time we started to consistently see the low turns occur pre opex.

 

September 2014 Turning Point Preview (as of cob Friday, August 29th):

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

Other than 1976 and 1978 – September has never produced the high for the year since 1976 , UNTIL 2012 – when it peaked on the day after FOMC – Sept 14th and fell until November opex

Since 2007, September has seen solid initial rallies with the exception of the two bearish years (2008 and 2011) which both saw highs for the month on the first trading day and then the market trend down in volatile fashion. The one issue for the current market is that there was no late August pullback like we have seen in all of the other uptrending Septembers. Since 1998.

Septembers to Remember

While there is great fear of the month of September, it has been a remarkably consistent month in terms of how it trades – at least until post opex / post FOMC – there have just been two primary approaches to the month.

  1. Trend established in late August or early September and then rally / decline till either post FOMC or post opex (10 years since 1998)
  2. Less Trend – more of a trading range with a change in trend occurring between the 9th and the 12th (6 years since 1998)

The most interesting thing is that a new trend is established or the end of a pullback in the primary trend seems to almost always occur on either the last Tuesday of August or the first Tuesday of September. There really are only three significant exceptions since 1998  (2000, 2001 and 2002). While 2009 (Wed low) and 2013 (low for MID and RUT, but not SPX) are minor exceptions (see details below)

Bottom Line

Tuesday, Sept 1st and the day or two after will be critical for determining whether the persistent bull is now in a runaway phase.  I am deeply respectful of this persistent bull, but am also well aware of the historical precedents, which leaves me with these three most likely scenarios:

  • Persistent bull continues until post FOMC during opex week and then major tops and pulls back in to October
  • Market tops on Tuesday first of September and pulls back till the week before opex (9th – 12th)
  • Market follows the lead of March 2014 (and the other more trading range oriented) Septembers

One other slight possibility is that the market topped on the last Tuesday of August (when SPX hit 2005) and we are in the midst of a pullback (which should be at least 25pts ) that ends in early September.

As the month progresses, I will detail in my normal previews, the key turning points, but as you think about your trading for the upcoming month, here are some key points.

Ever interesting,

-D

 Detailed Turning Point Comments for September

 Labor Day Holiday:  Will comment separately in more detail, but per above and in more detail below, the first Tuesday of September has quite frequently been a key inflection point.  It is also the first trading day of the month and the first Tuesday of the month which also has its own set of interesting dynamics.  (see July 2014 and March 2014 charts of the RUT!!!)  Four of the six holidays this year have had minor tops or major tops before or after.

 September Employment:  A MIXED edge – while very important, there is more variability than most months – though we are starting to see more rally continuation after lows or dips at the end of August – which occurred in 2010 (31-Aug), 2012 (30-Aug and 4-Sep: Double bottom) and 2013 (28 – Aug).  There has been no dip in late August, so we will just need to see what transpires in the first few days before employment to determine

September Opex and FOMC (Opex Wednesday):   I mention these together as it is a powerful combination that has produced some major turns in the past. While June 2014 produced nothing, there have been FOMC / Opex related turns in every September since 2007. In September 2013, it was a MAJOR top the day after the FOMC.  A turn – possibly a major turn – should be anticipated.

 End of September / Early October:  One other  little know occurrence for September is the regular occurrence of either bottoms or at least one large up day that occurs on one of the last three days of September or the first three days of October.  Four times, it has marked a major low since 1998. The most recent one was the 2011 low on the 2nd trading day of October.  In 2013, there was a 21pt SPX bounce from the 30th of Sept to the 1st of October.

Current conditions post August 2014

August marked the fifth month since 2007 and the second month this year (also February) where there was no opex turn.  There was also no late August pullback which has been a standard feature of even the most bullish months.  Post the no opex turn this past February, March did see new highs, but the market turned more volatile with turns occurring every week.

I covered most of the current conditions in my pre Jackson Hole comments which can be found here:

https://pugsma.wordpress.com/denalis-turning-points/

Since I posted those comments, there has been little change. The only other notable thing is that we have closed above 2000 in the SPX and the MID (MDY) has become daily OB – which triggers my critical warning:

  • After being daily OS, if we do NOT TEST the low or make a new low, then be VERY CAREFUL shorting the first OB period, as it almost always does not work! (mar 09, Feb 10, Aug 12, Dec 12, Feb 2014)

Septembers:  Trend till FOMC or Post opex   or  Trading range?

Year
  • Comments
1998
  • Trended Up
  • Till post opex
  • Low was on Tuesday 1st of September.
  • Uptrend was volatile, but finally peaked on Wed, 23rd post opex.
  • FOMC was on 29th and just had minor bounce
1999
  • Trended Down
  • Till 28th
  • Peak was in late August – bounced from Thursday,   2nd Sept to first Tuesday which was post Labor Day / Post employment
  • Fell in 3 waves till Tuesday, the 28th
  • Then bounced nicely
  • FOMC was not until 5-Oct
2000 Trended Down

  • Till 27th of Sept

 

  • High was on Friday, 1st of September
  • declined till a 27th of Sept bounce
2001 Trended Down

  • Till 21st of Sept
  • Already going down, but trended from a Sept high of 4-Sept till markets re-opened on 21st of Sept
  • FOMC was on 2-Oct
2002
  • Trend Down but more of a trading range
  • Wed, the 11th
  • Had peaked post August opex and then fell hard on Tuesday, 3rd of Sept then bounced from the lower bollo on Thursday, the 5th pre employment to Wednesday, the 11th and the trended down till early October
  • FOMC was on 20-Sep
2003 Trended up but more of a trading range

  • Friday, the 12th
    • Bottomed after a sharp two day correction on Tuesday, August 26th then had a brief pullback from Monday 8th of Sept to 12th of Sept (to 20 day MA and near lows of the month) and then one more pop higher to Opex Thursday the 18th   (2 days post FOMC) then down to new lows the rest of the month with a 30-Sep low
    • FOMC was on 16-Sept
2004 Trended Up

  • Till FOMC on 21st
    • Bottomed well below 200 day in early August. Had a brief two day pullback that ended on Tuesday, 31st of August
    • Rally finally ended on Tuesday post opex – the 21st – Same day as FOMC
2005 Trended up but more of a trading range

  • Friday, 9th of Sept
    • Had fallen all of August. Bottomed on last Tuesday of August at lower bollo
    • Rally lasted till Friday, 9-Sept and then market fell till mid October
    • FOMC was on 20th of Sept
2006 Pulled Back then trended up

  • Monday, the 11th
    • Peaked on 1st Tuesday of Sept post Labor Day and employment
    • Pull back lasted till Opex Monday, 11th of Sept and then the market ran higher
    • FOMC was on 20th of Sept
2007 Trended up but more of a trading range

  • Monday, the 10th
    • After August opex collapse bottom, first pullback ended on last Tuesday in August (the 28th), then rally ended just below upper bollo on Tuesday post Labor Day (the 4th) and this pullback ended on Monday, the 10th post employment and then market rallied strongly till 19-Sept well above upper bollo (FOMC was on 18th of Sept)
    • Last pullback ended on 25-Sept
2008 Topped on 1st trended down

  • Post FOMC on Thurs, the 18th
    • Strong rally on the first day of the month post Labor Day failed at slight new highs and market trended down in volatile fashion
    • Had HUGE Paulson bounce post FOMC on Opex Thursday, the 18th, but bounce topped on the 19th and downtrend resumed in to early October
2009 Trended up then pulled back

  • Tuesday, 22nd – pre FOMC
    • First Tuesday of Sept was a sharp down day, bottomed on the Wednesday and market rallied to new highs
    • Topped day before FOMC on 22-Sept and fell till October employment
2010 Trended higher ALL month

  • Tuesday, 21st – post FOMC
    • Bottomed post August opex, but had one last pullback on Tuesday, August 31s to test the lows and then the rally was on.
    • FOMC on 21-Sept created a brief 2 day 25pt pullback, but then the rally resumed
2011 ToppedEarly, but then was more of a trading range

  • Monday, Sept 12th
    • High for the initial rally from the August collapse lows was on Wednesday, 31st of August
    • Market fell sharply for employment and bounced from Tuesday (post Labor Day) Sept 6th for two days
    • Then bottomed on opex Monday, Sept 12th   and did not top till Tuesday,   Sept 20th, the day before FOMC post opex
    • Market then fell hard in to early October
2012 Trended higher until day after FOMC

  • Post FOMC, Friday, 14-Sept
    • End of August pullback ended on Tuesday 4th of September post Labor Day, market then rallied strongly for two weeks on ECB action, employment and FOMC
    • Peaked day after FOMC above the upper bollo band on 14-Sep which established the highs for the year
2013 Trended higher until day after FOMC

  • Thursday, Sept 19th Post FOMC
    • Very similar to 2012, except a deeper August correction. End of August had double bottoms lows. First Tuesday of Sept saw new lows for MID and RUT and then the market trended higher
    • Topped on Opex Thursday, the 19th of Sept – the day after the FOMC
2014 ???

FIRST Tues in Sept or Last Tuesday in August – end of a trend or pullback?

Year Turn? Date Comments
1998 Low
  • Tuesday, Sept 1st (Pre Labor Day
  • Market had sold off hard on 31st and then made its lows on the 1st – bounced till 23rd Sept
1999 No ** Low&High
  • Tuesday, 31st of Aug
  • Tuesday 7th of Sept (post Labor Day
  • Good Bounce on Tuesday, 31st of August but made slightly lower low on Thursday then rallied
  • Rally that began on 31st ended post Labor Day and market fell away the rest of the month
2000 NO
  • Market peaked on Friday, the 1st pre Labor Day and was down all month
2001 NO
  • In a MAJOR down trend – tried to bounce Tuesday post Labor Day, but failed and downtrend continued
2002 No
  • In a sharp downtrend from post August opex, bounced from lower bollo on Thurs 5-Sept till 11-Sept
2003 Low Last Tuesday in August
  • Had sharp two day correction from upper bollo to just below 20 day then rally resumed
2004 Low Last Tuesday in August
  • Brief pullback ended and then we ran higher till post opex
2005 Low Last Tuesday in August
  • After travelling down the lower bollo, bottomed on the last Tuesday of August and rallied till the 9th of September
2006 High First Tuesday in Sept (post Labor Day
  • Closed near the highs (post employment) and then pulled back for 6 days until Opex Monday then the rally was back on
2007 High First Tuesday in Sept (post Labor Day
  • Closed near the highs and then pulled back for 6 days until Monday post employment and then the rally was back on
2008 High First Tuesday in Sept (post Labor Day
  • Opened lower, but spiked to slightly higher highs than the previous week and then collapsed till Thursday of opex week.
2009 NO*Low First Tuesday big down. Slight new lows on Wed
  • Peaked on Fri Aug 28th and had sharp down move on Tuesday, Sept 1st. Bottomed the next day – 4pts lower and then rally began
2010 Low Last Tuesday in August
  • Final pullback to test the August lows and then strong rally began
2011 Low Bounce onFirst Tuesday in Sept post Labor Day and employment
  • Market had topped on Wed, 31-August and then fell sharply through the employment report
  • Bottomed on the first Tuesday of Sept. Bounce lasted two days and 64pts
2012 Low First Tuesday in September post Labor Day
  • Essentially, a double bottom low with the previous Thursday.
  • Market then rallied strongly till Friday, 14th of Sept
2013 Low *** First Tuesday in September post Labor Day
  • Slight new lows for MID and RUT, not quite a double bottom for SPX and then we were off
2014 ???

Labor Day Holiday Turning Point Preview for Sept  2014 (as of  cob on Friday, August 29th):

Holiday turns have been reasonably good turning points this year as we have major turned once (post MLK day and opex in January), minor turned three times (before New Year’s, post Good Friday and before the 4th of July) and not turned twice (President’s Day (not expected) and Memorial Day)

There should be a turn (as there is almost always one on the last Tuesday in August or first Tuesday in September – it is possible that the SPX high this past Tuesday is it), though it should be noted that most of these turns were lows at the completion of end of August corrections.

For a rally like we have had this August, we have entered uncharted territory for my turning point data (though see the September 2000 potential analog below), as there has almost always been a late August pullback or top and there has ALWAYS been an August opex turn since 2007.

Additionally, we are at the highest RSI pre Labor Day since 2007 which as detailed below makes it likely  (9 out of 11 holidays that had RSIs above 70 before the holiday experienced at least minor tops) that we will have a pullback shortly.

Except for when we hit 1500 in Jan 2013 (no opex turn like this past August), we have also had at least a 25pt SPX pullback  when the SPX has hit a round number milestone. The 15pt pullback this past week was not significant enough to count, so we are still due for some weakness.

That study can be found here   https://pugsma.wordpress.com/denalis-turning-points/

Bottom line

We are dealing with a persistent bull market where top calling has never proven right for very long. A minor top and a pullback of at least 25 points and a few days is likely to relieve the overbought conditions and allow the market to re-set.  It does not have to happen, but it is the likely outcome especially as there was no opex turn in August.

If there is a geopolitical event over the weekend and a sharp sell off, it is possible that like in March 2014, the pullback could occur and end on Tuesday before a move to new highs.

For those based in the US, ENJOY the holiday!

-D

Labor Day Turn History

Overall, a holiday to watch carefully, but not a great one

  • The Tuesday after has been a turn day in 2008, 2011 (low), 2012 (low) and 2013 (low after for MID and RUT, day before for SPY)
  • The key for the Labor Day turn is the end of Aug / beginning of September. Both the last Tuesday in August and / or the first Tuesday in September have become key turn times (mostly minor ones). In bullish years (ex 2008), there has been an end of August pullback that has ended between the last Tuesday in August and the first Tuesday in September
  • Since 2007, the market has turned 5 times in 7 instances – Had 3 major turns (2007, 2008 and 2011) on the day after and a Major bottom on the day before in 2013
  • The two times there were no turns were when Labor Day was post employment (2009 and 2010) and we had had a late August pullback
  • We are pre employment this year – here are the four instances of Labor Day Pre employment since 2007
    • 2007: Major Top – coming off the deep August opex bottom – there was a sharp surge from 29-Aug that topped post Labor Day and retraced for 6 days
    • 2008: Spiked higher on the day after the holiday to test the August highs and then fell sharply
    • 2012: Slight end of August pullback that started on the 21st (post August opex) ended with a double bottom either side of the Labor Day holiday
    • 2013: Post the extended August correction, the low for SPY was on the day before and for MID and RUT on the day after and then the market was off and running

Current Conditions:

The SPY closed on Friday with a daily RSI 9 of 75. There have been 11 other holidays since 2007 where we have closed with a daily SPY RSI of 70 or higher on the day before the holiday. In two instances, there was no top – Christmas 2013 which is understandable as Christmas is rarely a holiday top and the MLK holiday in 2013 (as it was post opex, this was a definite surprise).

This is by far the highest RSI for the day before Labor Day holiday since 2007 (in 2009 it was 56 after a pullback ended on the Wednesday before and in 2007 it was 56 when we topped on the day after the holiday and pulled back 57pts in 6 days

The other nine instances of holidays that had RSIs of 70 or above are as follows (from RSI high 77 to low 70):

  1. MLK in Jan 2011 topped at the close on the Tuesday post holiday and pulled back 25 pts in 2 days
  2. Independence Day in July 2014 – topped at the close the day before holiday and pulled back 32 pts in 7 days
  3. New Year’s in 2014 – topped the day before the holiday and pulled back 26pts in 6 days
  4. President’s Day in 2013 – was up all day on the day after, peaked near the close and pulled back 46pts in 7 days
  5. President’s Day in 2011 – MAJOR Topped on Opex Day the day before and fell 50pts in 6 days
  6. Good Friday in 2010 – Minor topped on the Tuesday (normal for Good Friday) and pulled back for two days
  7. President’s Day 2012 – Minor topped on day after and pulled back for two days
  8. Thanksgiving 2013 – Topped on day after and pulled back 34pts in 5 days
  9. July 4th 2011 – Did not top till the third day after the holiday pre employment (was 16pts higher) – but that was the summer topA pullback is definitely due – it did not feel like there could be one post employment before Independence day this past July, but there was one. Of course, there have been exceptions in this persistent bull, and given the history of this market, if the turn does occur, it will probably be a minor one ending before the employment report on Friday, the 5th.Potential Analog – 2000

A number of people have mentioned the comparison to September 2000 and there are some valid elements – a July peak, a sharp fall and then an extended August rally (with no opex turn), but there was a two day 24 pt pullback at the end of August 2000. Back then we made a slightly higher high on employment day, Sept 1st,and then fell sharply all of September. It is certainly one plausible scenario.  I primarily mention it here as it is the only valid August comparison that I could find since 1998.

Holidays in General

Holidays in 2013 and 2014 have consistently met with expectations for turns – that does not mean all holiday had turns – but the ones that were expected to have turns did have them with the exception of MLK in 2013.

2014     4 of the 5 expected turns have occurred (out of 6 holidays so far)

  • New Year’s Eve – Minor top on day before and declined for 6 days and 26pts
  • MLK: (post opex) MAJOR TOP on Day after for SPX and Wednesday after for MID and RUT – fell for 15 days and 111 pts
  • President’s Day (during opex – No turn expected) Minor 1 day 24pt pullback on the Wednesday after
  • Good Friday:   (Turn expected on Tuesday after) – Minor top near close on Tuesday after that was tested on Thursday’s open – final pullback was 34 pts in 6 days.
  • Memorial Day (Significant turn expected after) NO TURN
  • 4th of July (post employment – turn expected) – Minor top on Thursday before (employment report) and a 7 day 32pt pullback)
2013: EXCEPT for MLK and Christmas, it was a very good year for turns with 7 of the 9 holidays producing decent turns

  • New Year’s Eve – MAJOR BOTTOM on Day Before – this was the end of the opex correction and we exploded higher at the start of the year
  • MLK (post Opex) – Turn EXPECTED – NO TURN
  • President’s Day (post opex): Minor top on day after holiday – declined for 7 days and 46pts
  • Good Friday: Minor topped on the Tuesday after (when Europe has returned from its 4 day holiday weekend) and declined 34 pts in to the employment report
  • Memorial Day:   MAJOR top on the day after – there was a sharp 2 day rally after the even sharp fall post opex. We then fell 75 pts till the day before the employment report
  • July 4th :   (pre employment) Major Bottom the day before – while this qualifies as a major bottom – in reality there was just a small 2 day 22pt pullback prior to the holiday and then we exploded higher for the rest of July on a good employment report
  • Labor Day –MAJOR Bottom for MID and RUT on Day after and for SPX on Friday before – rallied 104 pts in to Septemer Opex Thursday
  • Thanksgiving – Minor top on day after and declined 34 points till the Wednesday after
  • Christmas – (No turn expected) – NO TURN

 

Updated 25 Aug 2014:  SPX Hitting Round Numbers – Then seems to pull back 25 points.

Here is a study I first published in May 2014 when we traded 1902, and then pulled back for two days.   As there was no opex turn, I do not have a strong view on what might happen in the next few days, as the next turning point of significance is Labor Day.

Most, but not all of the SPX moves above round numbers in the SPX occurred around opex and then resulted in at least a 25 to 30 pt downtrade over a few days (not all, but most)

The last time there was not a pullback when a round number in the SPX was tested / breached was when it broke above 1500 in Jan 2013. Interestingly like this month, Jan 2013 did not have an opex turn. Also, this is obviously not an opex week, so the study may not be as relevant, but it is good to be aware of it nonetheless.

-D

1 Aug 2009 1000 – First closed above on 1 –Aug-09 at 1003. Moved higher till employment Friday (the 7th)in August 2009 and peaked that day at 1018 – then pulled back till Opex Monday at 979 (39 pts in 10 days)
19 Oct 2009 1100 – Peaked post opex in October 2009 right at 1100– first on the Monday and then with an intraday 1pt spike above at1101 on the Wednesday post opex and fell to the lower bollo at 1029 2 weeks later (72 pts)
14 April 2010 1200: Traded above 1200 on opex Wednesday and then peaked the next day on Opex Thursday in April 2010 above upper bollo at 1214 – pulled back till the Monday post opex at 20 day MA and 1284 – 30 pts – one big down day and then bottomed the next and headed higher for a week before peaking and encountering the flash crash.
27 Jan 2011 1300 – Stopped at 1296 above the upper bollo on 18-Jan-11 – opex Tuesday… pullback stopped on opex Thursday at 1271 – Wednesday was the big down day – bottomed the next day (down 25pts). Made the next move on 27-Jan and hit 1301, but fell hard the next day to 1276 …. But then the rally was back on and the market headed higher till the end of Feb opex when the SPX hit 1344
15 March 2012 1400 – Punched through in March opex 2012 – strong up week that did not stop till the Monday post opex at 1414 . (There were some Fed and JPM shenanigans that week) declined for 5 days to 1387 (27pts)
24 Jan 2013 1500 – Jan 2013 – did not exhibit anything until Feb opex at 1531
April 2013(first test)3 May-13 1600 – the strongest initial failure hit 1597 on Thursday before opex (11-Apr-13) – fell mildly on the Friday and then was down BIG on Opex Monday – bottomed at 1536 on Opex Thursday 61 pts in a week, but then came back strong post opex and cleared the milestone with ease on 3-May-13
1 Aug 2013 1700 – strong punch on Thursday, 1-Aug-13 in front of employment – closed at 1709 on employment day and then fell away to 1628 at the end of August
18 Nov 2013 1800 – punched above on the Monday post opex 18-Nov -13 with an 1802 high but stopped there and declined till the Wednesday at 1777 – Down 25 pts in 3 days…Cleared it again on 22-Nov, but was not able to make that much progress (traded between 1813 and 1768 for almost a month) until a December opex day acceleration occurred above 1810.
23 May 2014 1900 – Had traded to 1897 in April and fell away to 1814 in a week… re-approached the level on Opex Tuesday, 13-May and traded 1902, but then pulled back in two days to an opex Thursday low of 1862   down 40 pts in 2 days. There was NO resistance on the third test on 23-May and the first pause was not until 1956 post employment
25 Aug 2014 2000 – ???

 

August 22nd Thoughts – pre Jackson Hole

The persistent bull that started in November 2012 appears to be alive and well. The one surprise (for me and probably many others) is that it has become MORE persistent than in 2013, as the corrections have become even shorter in duration with the two longest just being a 15 day one in Jan–Feb and the 14 day one in July-Aug. 2013 had three longer duration corrections of 33 days (post May opex to post June opex), 28 days (August employment to pre Labor Day) and 20 days (Post Fomc / Sept Opex to 2nd Wed in October).

The next few days, particularly the reaction to Jackson Hole, will be key to determining the nature of this market.

Since 1998, there has just been 2 years that did not have a noticeable late August counter trend move. In 2000, the market did not turn until 1-Sept and then it fell relentlessly and in 2006, the market just stalled for 5 days before resuming its rally.

As there was NO opex turn in August, comparisons to the two other months (Jan 2013 and Feb 2014) that did not have an opex turn during this persistent run are inevitable.

The comparison to Feb 2014 is particularly strong as the MID (MDY) had a daily MFI OS condition then as well for this month’s employment period.

The key thing for these daily MFI conditions (25 times since Jan 2007) is the lows are generally re-tested before a sustainable rally occurs. But in 6 instances, we made a durable low that has only been broken once (the March 2008 one). Otherwise, all of the lows in the MID (Mar 2009, Nov 2009, Feb 2010 (was very closely tested in July 2010 and Oct 2011), Nov 2012 and Feb 2014 have never been broken.

There is still time for a re-test, but if there is not one, then the early August lows become very significant.

In general, the re-tests occur within 3 weeks in bullish markets, but surprisingly can take up to 9 weeks in bearish markets (late 2007, 2008 and summer 2011).

Yellen’s speech today reminds me of Bernanke’s speech to Congress on May 22nd, 2013 that started the first extended 2013 correction. I am not predicting an extended correction, I am just noting that it is a similar inflection point, as the FOMC is still a crucial factor in this market. As everyone probably now remembers, Bernanke’s Jackson Hole in 2010 was the catalyst for the rally off of the post opex low that created the major bottom in August 2010.

My next substantive comment will be late next week when the market price action will allow me to better preview the turning points for September, particularly, the Labor Day holiday and the September employment report.

Have a good weekend,

-D

 

Opex Turning Point for August 2014  (as of midday on Thursday, August 14th, 2014):

Sorry for the long period of radio silence, but my other job (“Mr. Mom”) means that summer holidays are primarily a kid centric time….  Thankfully, the five week summer holidays end tomorrow, so I will be back to my normal market focus.

With the better part of a month away from intensively viewing the markets, there are more than a few (hopefully fresh) observations to make regarding the market.

Here are the key points:

  • Thursdays have been the KEY day lately (8 of the last 11 turns have occurred on Thursdays!)
  • The recent FOMC and employment turns were different than has been seen recently, which should (emphasis on the SHOULD) mean the market will be more balanced
  • The market’s streak without a 50pt correction ended at 104 days – just one day shy of the previous best mark. The 105 day period without a correction ended in April 2012. The market was then in a corrective period for two months till early June 2012
  • The 2014 trend of bottoming before opex week continues…. (sorry I did not comment on this last week, but I was dealing with three kids and four cases of six hour jetlag) – the market has now bottomed late in the week before opex every opex since last October except for January and February.
  • MDY and SPY have both been MFI OS for quite some time – normally during opex this provides an excellent buy signal IF there is a continued sell off – alas, there has been no continuation from last Thursday, so this set up is not valid.
  • Prior to 2012 August opex has a very good track record of producing major turns. Alas, in 2012, it was just a minor top on the Tuesday after and a minor bottom on the Wednesday after in 2013. If the August opex trend continues, then expect a post opex turn
  • Other than July 2014, the last 6 Gap ups on Opex Wednesday have meant either a top on opex Friday (Feb 2011) or a minor top post opex
  • In July, the RUT and MID topped on the 1st of the month and stayed lower all month. In August (so far), the MID and RUT bottomed on the 1st of the month and have stayed higher all month.

Bottom Line:

If you had asked me last week, I would have excitedly told you that the daily MFI OS state of SPY and MDY indicated that we were very likely setting up for a great late in opex week bottom  (like in November 2012). Clearly that has not happened. Instead, the rally has meant we are following the same script that we have seen since October 2013, which most likely means a minor top post opex, BUT (!!!)   I am cautious about even predicting a post opex minor top right now – it is the likely occurrence, BUT the daily MFI OS state for this many days (since 31-July) despite this week’s rally has me cautious as it is not something that has occurred since 2007.

In summary, Thursdays have been a key day, so watch to see if today’s highs are taken out tomorrow or early next week. If so, then the market is likely to make a minor top early next week (with Tuesday being the most likely day) and have a 25pt plus pullback.  If today’s highs do hold then we need to keep respecting Thursdays and look for a post opex low – possibly yet again, next Thursday.

For now, as seems to be the way for most of 2014, I am cautious, as there is not an obvious and high probability turning point set up right now.

-D

Detailed Research info

As it now so late in opex week (sorry for that…) I will not post the usual opex info, but will instead highlight when opex turns have occurred since last October when this streak of bottoming pre opex began.  The streak has just meant minor tops except for the one minute spike down low in December.

  •  Oct 2013: Super Minor top on Tuesday post opex combined with late employment report
  • Nov 2013: Minor top on Monday post opex and 3 day 25pt pullback
  • Dec 2013: Major Bottom due to Fed induced 1 min spike down on Opex Wednesday
  • Jan 2014: (No pre opex week dip) – Major top on Tuesday after opex post holiday
  • Feb 2014: No pre opex week low – rally continuation
  • March 2014: Opex Friday minor top and a 6 day 42pt pullback
  • April 2014: Minor top on Tuesday post Good Friday holiday and a 6 day 34 pt pullback
  • May 2014: Just a mid week opex Tuesday to Thursday sell off of 34pts
  • June 2014: Tuesday post opex sell off lasted for 2 days and 24pts
  • July 2014: Technically an opex Thursday minor bottom as the top (current all time high) on Thursday, the 24th is outside of the opex window

Tuesday post opex is the favoured day  as 4 of the last 10 months have featured Tuesday post opex turns

August Opex Turns have generally been post opex in recent years

  • 2010: Wednesday after MAJOR BOTTOM
  • 2011: Monday after MAJOR BOTTOM
  • 2012: Tuesday after Minor top
  • 2013: Wednesday after minor bottom

 

FOMC / Employment Turning Point for late July 2014 / August employment   (as of cob on Tuesday, July 29th, 2014):

Apologies for the paucity of comments, but as the markets are doing little and technically, we are not particularly OB or OS, I have been focusing on my kids and their vacation much more than the markets.

This will not be my usual extensive post – but just a short one on this week’s two big events – last seen in late April / early May when employment and the FOMC are in the same week.

We are now in record breaking territory since the bull began without a 50pt correction which seems extraordinary at this point in the bull run and at these price levels, but then this is the most hated bull market of all time…….   We should have a more sustained correction at some point in the reasonably near future…. But so far the RUT is the only index that really had had a correction and it is enduring its third correction of 2014 this month.

Here are the key points:

  • Still no reason to be short going in to the employment report – we continue to make minor tops on the day of the report or the (July, May, April and March 2014) or the day after (June 2014)
  • FOMC has been less significant this year with just minor moves occurring and the turns really have been post FOMC ( March – 2 days, May 2 days, June (4 trading days)
  • The same week configuration for July / August FOMC has existed for the last two years – last year, we major topped on employment day after the relentless July rally. While in 2012, we had an unusual Monday pre FOMC to Thursday post Fed and pre employment slide before gapping up and running higher till post August opex.
  • FOMC and employment in the same week has generally increased the probability of a MAJOR (50 plus pt move) – which did occur in August 2013…. But the most recent one in May was a disappointing 3 day 31 pt pullback.

Bottom Line:

  • Eventually, there will be a MAJOR TOP and at least a 50 plus pt SPX pullback…. We are way past the time the Fed chair change study would suggest a significant top should occur (see early)Feb 2014 post, but the market clearly is not inspired to decline yet….
  • This week through next Monday or Tuesday is a prime time for a turn, but as it occurred last year, maybe the market has something different planned for us…. As August opex almost always provides a surprise.
  • For now, and probably till near the end of the August opex period, I will remain flat, as I just do not see a strong edge…. Which means vacation is more appealing than the markets right now.

ENJOY your summer holidays,

-D

FOMC the week of employment

  • There has NOT BEEN A MAJOR TURN on every combination of FOMC and employment, but there certainly have been a lot – the most famous one – that is NOT on this list as the FOMC was post employment and so not in the same week was the MAJOR Aug 2011 bottom
  • We have this combination a total of 9 times. Twice for Jan / Feb combos that do not seem to matter
  • There unfortunately is NO set pattern, though there have been some MAJOR MOVES that have occurred with the 7 non Jan/ Feb instances.
    • 3 Major TOPS post employment (Nov 2010, Nov 2011 and Aug 2013)
    • 1 Major TOP post FOMC (Oct 07)
    • 1 Major Bottom pre FOMC (Nov 2009)
    • 1 Major Bottom post FOMC and pre employment (Aug 2012)
    • 1 Fake out down day (especially for the RUT) that then turned in to a storming rally (May 2013)
    • 1 Minor Top on employment day (May 2014)
  1. Jan 07 / Feb 07 employment: Market had bottomed on the Friday before Fed at the 40 day and then took off on Fed day and then minor topped the Wed post employment
  2. Oct 07 FOMC / Nov 07 Employment: MAJOR TOP on FOMC day and fall continued in to Nov opex – this was the end of the first bounce after the decline from the MAJOR high in the second week of October – touched upper bollo
  3. Nov 09: Major bottom on Monday before FOMC and market just kept rallying until Opex Monday – We had been selling off since post Oct opex and had fallen back to the lower bollo band
  4. Nov 2010: MAJOR TOP at the close on employment day – two days after FOMC and day after Bernanke Op Ed – There had been a very strong 3 day rally from FOMC day to employment day thanks to the Bernanke op ed and then we re-traced the whole rally and them some in to Nov opex – spent one day totally above upper bollo
  5. Nov 2011: Extremely volatile – MAJOR BOTTOM on the day before FOMC and then MAJOR TOP on the Tuesday post employment The TOP was the more significant one as we then fell 120 pts in to the MAJOR Nov 11 post opex bottom (Topped when it rallied 62 pts in a week to the 200 day MA from below
  6. Aug 2012: Minor Top on the Monday before FOMC and then a MAJOR Bottom on the Day after FOMC as we soared on employment day – it is rare to trade down through the FOMC like this, but it did – but it was the FAKE OUT trade – Hit the upper bollo on the Monday before FOMC and traded down a bit below the 20 day MA
  7. Jan FOMC / Feb 2013 employment: Miniscule one day top on Fed day and then another minor top on employment day – really nothing here as we were in a super bullish enviroment
  8. May 2013: A total fake out with a significant fall (particularly in the RUT) on Fed day and then a storming rally that did not stop till post May opex   – NO TELL
  9. July 2013 / August 2013 employment: A MAJOR TOP post FOMC on employment day – No real tell except MID breached upper bollo
  10. April / May 2014: Minor top – A Monday low and a nice rally through FOMC in to a minor top at the open on employment day – just fell till the Wednesday after and 31pts

 

Opex Turning Point for July 2014   (as of cob on Wednesday, July 16th, 2014):

First, apologies for the delay in posting this opex comment – I am on holiday with my family and I have been trying to get a new laptop up and running with the usual frustrations. Commenting will remain light until early August, unless I see something compelling – alas, for now, that does not seem likely in this market

While the usual info is provided below, here are the key points:

  1. In 2014, except for February (which was somewhat expected due to the opex week holiday), the opex turns have continued to be between the Thursday of opex week and the Wednesday after opex… sadly, except for January’s post opex major top – and May’s slightly historically unexpected opex Thursday low – all of the turns have been just minor tops and pullbacks for a few days and 23 to 45 SPX points
  2. This opex pattern of a low the week before opex continued this month with last week’s Thursday low at 1953– this pattern of employment tops and short term pullbacks ending prior to opex week has been amazingly consistent since December.
  3. The next FOMC meeting is in two weeks, and as we have been continuing the pattern of rallying in to both the FOMC and employment, the window for an opex top turn and pullback is fairly limited – one should occur, but the tendency to rally in to the FOMC and employment report is VERY strong, so the timing window for the pullback is limited assuming this year’s pattern continues.
  4. Per my comment on longest periods without a 50pt pullback, we are nearing the longest period since the bull market began without a 50pt pullback, so if opex does not produce one, then the odds will further increase that the FOMC / employment combination in two weeks will produce a more significant turn.
  5. July opex – except for 2013 when there was just a minor turn on the Wednesday post opex and in 2009 when there was a MAJOR post opex / post holiday bottom pre opex – has been a great opex for MAJOR TURNS – 1998 and 2007 produced significant major tops – while more recently – 2008, 2010, 2011 and 2012 produced 50pt turns – though only the bottom in 2008 was truly significant.
  6. Finally, The last 5 times (Feb 11 through April 2014) we gapped up on Opex Wednesday – no matter what we did on the day, we kept rallying till we turned on the Friday (Feb 2011) or post opex. The four post opex turns were all minor tops with April 2014 being the last instance.

Bottom Line

A minor turn – possibly on Thursday and at the latest, next Wednesday is highly likely. Normally, (and maybe this is another good contrarian sign), I would be suggesting that the SPX would be ready for a more significant major turn – but with the next FOMC coming soon and the failure of the SPX to have a major turn in June, my current view is that until there is concrete evidence that the character of the market has changed and become more volatile, it is more likely for the current patterns to repeat than it is for the historically predominant patterns to assert themselves again.

I hate to repeat last month’s opex comment, but it is still true – the market continues to be ever interesting and somewhat challenging as the market is not following a typical historical pattern.   I wish I could provide some significant and helpful analogs for the price action of the last two months– but there is really nothing that is particularly relevant or insightful. I would not be surprised if we hit a major summer peak during this July opex period like in 1998 and 2007 – but it is not something I am expecting or predicting.

Enjoy your vacations – if and when you take them!

-D

Opex PRIMARY TENDENCIES

-Opex turns generally occur from the Tuesday of opex week to the Wednesday after.

RECENT HISTORY –  overall

Since September 2013, opex has been very consistent with significant rallies at some point in opex week and except for April’s Good Friday opex week / combo low on the Friday before opex, all of the primary turns have been late in Opex week (Thursday or Friday) or post opex. This late in opex / post opex feature has really been a consistent feature since Jan 2013. Here is what has happened with opex since August 2013 – the LAST truly bearish month (It really has been quite an opex run for the bulls!)

  • August 2013: (minor bottom – Wednesday after) Employment Day top – sharp breakdown on Opex Thursday and a bottom on the Wednesday post opex, a decent bounce and then a fall in to the end of the month (and for the MID and RUT a bottom post Labor Day)
  • September 2013: (Major Top / Post FOMC on Opex Thursday) After the late August / early September bottom, we exploded higher – even gapping up in to Opex week and then thanks to the FOMC, we major topped on Opex Thursday
  • October 2013: (Minor top on Tuesday post opex post delayed employment report) After the second week in October low, except for a head fake in early October, we ran higher through opex with the Thursday being a particularly strong day and thanks to the delayed employment report we just had a minor top on the Tuesday after opex.
  • November 2013 (Minor top on Monday post Opex): After the sharp sell off on the Thursday before opex, the delayed employment report –sent us strongly higher throughout opex week until we ran out of momentum on the Monday after opex
  • December 2013 (FOMC Wednesday – 1 minute spike Major Bottom) – A nice Sunday night panic low in the futures helped the market to a gap higher to start opex week – there was a bit of a fade on Tuesday and then a bizarre one minute sell off post FOMC that created the SPX low for the month of December – and then we were off
  • January 2014 – (MAJOR Top – on the Tuesday post opex and post employment) another late employment report led to a sharp opex Monday sell off, but we were then strongly higher on Tuesday and Wednesday and while there was a slide fade in the SPX on Thursday and Friday, the post holiday animal spirits were initially strong with the SPX topping on the Tuesday while the MID, RUT and NDX topped near the close on the Wed post opex and fell hard in to early Feb
  • February 2014: (No turn – higher in to March employment) After the major pre employment low, Feb opex went true to form and did not have a turn thanks to the President’s Day holiday being at the beginning of the opex period.
  • March 2014 (Minor top on Opex Day post FOMC) – Closed on the lows on the Friday before opex and then gapped up on opex Monday – after a strong post FOMC sell off, we reversed on the Thursday only to top at Friday’s open – but the decline was only for 6 days and even failed to fill the week’s opening gap
  • April 2014: (Major Bottom on the Friday before opex thanks to the Good Friday holiday – bottoms on Opex Tuesday for MID, RUT and NDX) – true to past history, thanks to the Good Friday holiday on opex day, we made an early bottom on the Friday before opex and then rallied in to the Tuesday post opex before having a minor pullback.
  • May 2014: Gapped up on the Monday and ran higher, but got hourly overbought and the advance stalled after new all time highs on opex Tuesday. A mild pullback on the Wednesday accelerated on the Thursday, but the market got hourly oversold and bottomed on the Thursday and the rally commenced again with only the Tuesday post opex the only significant down day between the Thursday opex week low and the Monday post June employment. (note: This opex week counts as a minor top on the Tuesday despite the significant low on the Thursday, as the Thursday low was within the previous week’s range and the Tuesday minor top was more notable)
  • June 2014: After the short post employment pullback, June opex was a trending opex week that produced a strong rally on FOMC day – opex Wednesday – and then a small move higher until the Tuesday post opex that featured a spike higher that then reversed and produced just a two day 24pt pullback

Summary of Opex Turn stats

  • Major Bottoms (4): Apr 13 (Thurs), June 13 (Mon after), Dec 13 (Wed post FOMC), April 2014 (Thanks to Good Friday, the Friday before opex)
  • Minor Bottoms (1) Aug 13 (Wed after)
  • Major Tops: (3) May 13 (Wed after with a Bernanke speech), Sept 13 (Thurs after post FOMC), Jan 14 (Tues after post holiday)
  • Minor tops (8): Feb 13 (Tues after post holiday), Mar 13 (Thursday of opex week), Jul 13 (Wed after), Oct 13( very minor, but met the criteria on Tues after), Nov 13 (Mon after), March 2014 (Opex Friday), May 2014 (Opex Tuesday) and June 2014 (Tuesday post opex)
  • None (2) – both rally continuations – Jan 2013 and Feb 2014

RECENT JULY OPEX WEEKS

  • STRONG record for turns – only 2009 missed one and that is because it turned strongly post holiday / post employment the previous week
  1. 2007 Major Summer top on Opex Thurs
  2. 2008 Major Bottom on opex Tuesday as we had been sliding for weeks and were very oversold
  3. 2009: Made a very strong bottom the week before and just rallied the rest of July with opex having ZERO impact
  4. 2010 Major Bottom – Tues after at opex – had topped for the week on Opex Tuesday and pulled back 42 points in to the post opex Major bottom.
  5. 2011 Major bottom on the Monday after and a strong 3 day 51 pt bounce before the summer slide resumed
  6. 2012 – Was a MAJOR TOP on opex Thursday and a MAJOR bottom on the Tuesday after – very volatile
  7. 2013 – Just a minor top on the Wednesday after, 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 major topping on August employment day

CURRENT CONDITIONS

On a daily basis, the current conditions provide no edge or specific insight as we are neither particularly OB or OS – same with the hourly conditions.

The weekly and monthly indicators are both highly OB. But neither the weekly or monthly indicators are much help with respect to opex turns.

-The weekly MFI on the SPY of 92.5 is the highest in the last 10 years – in March of 2012, SPY hit 92 and then topped in early April and corrected in to early June)

-The monthly RSI of 82 matches the recent level we saw in December 2013 – but it was not until January that we had the sharp post opex correction.

Overall, the market continues to be due a significant 50 plus point pullback – normally these occur from late April to post June employment.  We are now at 96 days since the last 50pt pullback. Per the July 8th market observations posted here

https://pugsma.wordpress.com/denalis-turning-points/

The longest period without a 50pt pullback since the bull began is 105 days.

Some day – reasonably soon – another one should begin with either opex or the FOMC / employment report (like in August 2013) being the likely catalyst. The big issue for such a pullback right now is that so many people are either predicting one, expecting one or hoping for one so they can ‘buy the dip’.

 

July 8th – Market Observations:

There are three things to cover today.

-EMPLOYMENT Pullbacks

-Bottoms before opex

Time between 50pt pullbacks in the SPX

From my employment preview, I stated the following:

BOTTOM LINE:

At least a minor turn is once again due for employment. As is generally the case with this bull market, being short is the scary trade, particularly as the corrections in 2014 have gotten shorter and shorter in duration.

There are still many long term indicators that suggest a significant MAJOR TOP is near, but none of these have worked to date….

For now, the safe prediction is that there will be a minor top for employment and a small pullback prior to rallying in to opex week – this has certainly been the trade for 2014.

While it is always a dangerous assumption that the market has topped – even for a short time, for now, it looks likely that Thursday was a short term top for the SPX, while MID and RUT had divergences with highs made on Tuesday – which is somewhat reminiscent of the 1st of the month divergences we saw in October 2013 and August 2013, as well as that crazy surge on Tuesday, March 4th.

With the exception of the April employment day top, we have been dealing with small employment turns that have ranged between 29 and 45 pts over a period of 3 to 6 trading days and there is no reason to think this time is different – it could be — but until we see a different pattern, we must assume that the pre opex low pattern that we have seen so frequently in the past year plus will continue to assert itself.

LOWS WEEK BEFORE OPEX

I will not repeat the full research I posted in June….  I wrote the following about this new pre opex week trend:

  • First the lows made before opex – this really is something that is new; and it is partly due to the fact that we are consistently getting employment turns. After seeing a blog that consistently highlighted the Thursday / Friday the week before opex as pre opex turn times, I went back to check the records and found nothing that remarkable. It occurred 7 times out of 12 in 2012 and 5 times out of the 12 months in October with 1 Wednesday in 2013.   Then we had lows before opex week (and gap ups on opex Monday) in March and April and May for the RUT (but it was a Wednesday low for the SPX) and it got me thinking that maybe, this is yet another thing I need to track, so here goes.
  • Watch for lows (currently the edge seems to be much more with lows not highs) on the Thursday or Friday before opex and then a rally in to opex.

We bottomed on the Thursday before opex in June.

The full comment can be found here:

https://pugsma.wordpress.com/denalis-turning-points/

50pt PULLBACKS since March 2009

Lastly, my final piece of somewhat new research.  I noted recently that this was the first time since 1995 that Q2 had not seen a multi week correction.  That got me to thinking about the duration between 50pt corrections since 2009.  Now 50pt corrections are pretty small on a % basis these days….  Obviously they were much more significant back in 2009.  Still for some reason, 50pts in the minds of the market still seems to work as being more significant… despite the lesser % change.

There have been 36 pullbacks of 50 or more pts since March 2009 – on average, they have occurred every 39 days. The longest period without a 50pt correction was the period that ended on 2-Apr-12   – it was 105 days between the end of the last 50pt correction and the start of the next one.

We are currently at 88 days – which is quite extended, especially for a period that is not substantially in Q1.

Here are the recent extended periods:

  • Oct 13 to Jan 14 – ended after 98 days subsequent correction was 83pts in 20 days before the next 50pt rally
  • Dec 12 to Apr 13 – 101 days   correction was 61pts in 7 days
  • July 12 to Sept 12 – 64 days … corrected 131 pts in 63 days
  • Dec 11 to Apr 12 – 105 days corrected 65pts in 8 days
  • Nov 2010 to Feb 11 94 days   corrected 95pts in 26 days
  • Aug 2010 to Nov 2010   72 days   …. Correction was 54pts in 11 days
  • Feb 10 to Apr 10 – 80 days   …. Corrected 154 pts in 10 days thanks to the Flash Crash
  • Nov 09 to Jan 10 – 78 days …. Corrected 106pts in 17 days
  • July 09 to Sept 09   77 days … corrected 60 pts in 9 days

Except for April 2013, all of these turns occurred around opex, employment or an FOMC meeting, so in the next month, we have as candidates this past Thursday’s employment / pre holiday high, we have opex (that might mirror the tops in July 1998 and July 2007) and then we have employment and the FOMC in late July / early August (which is when we topped in August 2013)

BOTTOM LINE:

A 50pt pullback is due soon. It could have already started from last Thursday’s high or we could see one occur thanks to July opex, which does have a good history of major turns or lastly, the latest the Bears should have to wait would be a new record for periods between 50pt corrections – which would see a high and 50pt pullback in late July around the time of the FOMC meeting and the 1st of August employment report.

As this comment includes some pre opex commentary, I will wait until early next week to comment on the possibilities for July opex.

ENJOY the summer holidays!

-D

 

July 2014 Turning Point Preview (as of cob on July 1st): 

‘EXPECT the Unexpected’ is something I try to remind myself all the time…   and that has never been more true than in 2014.

But we are starting to really get the unexpected these days:

  • In my June Monthly turning point preview, I highlighted that the month of June had always been good for at least 3 turns – at least one or two of them would be major 50 plus point turns – alas, we had no major turns and only the post employment minor top was a proper turn, as the post opex minor top was really much too short for a normal Quad Witch opex turn – even a minor turn
  • While May did provide two of the three turns that were expected – it did not provide the MAJOR TURNS that are normally a part of May trading.
  • The longest correction we have had since the February bottom is 7 days (Post April employment to the Friday before April opex) – this is extraordinary – the last time there was not a multi week correction in Q2 appears to be back in 1995!
  • There were no hourly buy signals for only the second time in a Quad Witch month since 2009 – the last was March 2013 – we topped in early April and corrected in to April opex. There have now been just 6 months since the bull market began in 2009 that there were no hourly buy signals. The last two times were March 2013 and July 2013 – there was significant weakness in both of the following months.
  • We have now been 48 days since our last hourly buy signal.

o   Excepting the normally bullish Q1, the last long drought was from post June 2013 August to post August employment – 49 days, but we then were down all of August after topping on employment day

  • 56 days is the longest non Q1 buy signal drought – that occurred between July 2009 and 2-Sep 09.

Before covering the key points from the July periods since 2007, there are just a few other things to note about the trading action so far in 2014:

  • We have topped on employment day or the day after (only in June) every month this year except for Feb.
  • All of the post employment turns have been brief, as we have bottomed and rallied in to every opex week since last September – with the slight exception of January as we had a late employment report – Thursday or Friday seem to be the preferred days for the low – though in May it was the Wednesday.

Given that May and June were atypical, I am only going to briefly touch on the history of the month of July since 2007 – as the price action in June normally is a good indicator of what might occur in July – but this past June’s price action was not historically normal:

  • Employment and 4th of July: The turns have been highly dependent on the late June price action.

o   We have rallied in to the report in 2007 (Minor top on Monday after), 2011 (very OB – Major summer top – Thursday before), 2012 (Very OB – Major top – Thursday before)

o   We have fallen in to the report in 2008 (minor bottom on the Friday), 2009 (Major bottom on the Wednesday after), 2010 (Major Bottom on the Thursday before) 2013 (just a small dip in to the trading day before the report

  • July Opex has a very strong record for generally Major turns – with only 2009 (major post employment / post holiday bottom) and 2013 (minor top on Wed post opex) not providing major turns.

I must admit the lack of a major turn in May was somewhat of a surprise, while the lack of a MAJOR turn in June was a REAL surprise for me, as was the lack of an hourly buy signal. There should be an hourly buy signal reasonably soon – but for now – the markets seem to be experiencing yet another period where the normal historical tendencies do not apply.

Still, one must remember that July and early August are when the markets do experience some very significant turns. (these are listed below) As the historical expectation for major turns in May and June was not fulfilled in either month, I will not attempt to forecast if or when a Major top turn may occur this month, but I will say that one is overdue!

ENJOY your summer holidays!

-D

MAJOR SUMMER TURNS in July and early August 1998 to 2013

  • 1998: MAJOR Summer top – post July opex
  • 1999: MAJOR Top – post July opex
  • 2000: Major top on Opex Monday
  • 2001: In a long downtrend with major turns on first trading day in July (top), Wednesday post employment (bottom), Opex Thursday (top), Tuesday post opex (bottom) and Thursday before employment in August (major top)
  • 2002: Major Bottom on Wednesday post opex
  • 2003: Major top on Opex Monday
  • 2004: Relentless slide all July – which did not stop till August employment
  • 2005: Post June opex correction ended on the Thursday before the late employment report and then rallied all of July in to early August
  • 2006: Re-test of June summer bottom occurred on Opex Tuesday and that was the last low for the year.
  • 2007: Major summer top on Opex Thursday and then a vicious slide in to August opex
  • 2008: End of major correction ended on Opex Tuesday
  • 2009: First significant correction of the bull market rally ended on the Wed post employment / post holiday and the market rallied strongly in to opex
  • 2010: Bottom of the correction that started with the Flash Crash ended on the Thursday before July employment
  • 2011: MAJOR Summer top on the Thursday before a late employment report
  • 2012: A rare July with no significant tops or bottoms – but a number of major turns around employment and opex as the market had a choppy rally
  • 2013: Coming out of the major post June opex bottom, no MAJOR TURNS until we topped on employment Friday in August.

 

Employment and Holiday Turning Point for July 2014 (as cob on July 1st):

We have been consistently turning on the employment report or the day after in 2014, so a turn should be expected. Interestingly, we have been turning on the day before the July employment report every year during the last four years independent of the timing of the holiday.

I am going to repeat the same thing I wrote prior to the June employment report

We are at all time highs in the market and at overbought extremes that have not been seen since my research started in 2007. A turn should occur, but this market has definitely surprised a lot of participants on the move higher, so any sell off may not be as big as many might hope ….

Now we did turn on the Monday post June employment, but it was just a minor 3 day, 30pt pullback

As for the 4th of July holiday and the employment report in general when followed by a 3 day weekend, there does seem to be some continuation when the market has turned away from a bollo band during June or July. This has been best seen when we have bottomed in late June or early July.   As we just hit the upper bollo band, this does not yet apply – though it could depending upon Wednesday’s market action.

BOTTOM LINE:

At least a minor turn is once again due for employment. As is generally the case with this bull market, being short is the scary trade, particularly as the corrections in 2014 have gotten shorter and shorter in duration.

There are still many long term indicators that suggest a significant MAJOR TOP is near, but none of these have worked to date….

For now, the safe prediction is that there will be a minor top for employment and a small pullback prior to rallying in to opex week – this has certainly been the trade for 2014.

-D

PRIMARY TENDENCIES

This is my standard employment report information and it rarely changes. I just update the stats.

DO NOT BE SHORT in to the EMPLOYMENT REPORT unless the technicals overwhelmingly favour a short (ie. July 2011 and July 2012)!

  •  Definitely look for major turning point as they occur almost 50% of the time– generally favors a bottom over a top, but lately even bottoms have been fairly rare – just June 2012, Aug 2012, April 2013, June 2013 and Feb 2014
  • Major Tops are RARE since the volatility of 2011–, but we just had one in April 2014 – before that it was just May 2012 (more FOMC related), July 2012 and August 2013 (again FOMC related)

o   Except for Jul 11 and Jul 12, all of these tops occurred on the Friday or Monday after

  • Major Bottoms can occur from the Tues before (Oct 2011) to the Tues after (August 2011 and June 2010). ). Employment day has seen some great bottoms like March 2009 and February 2010.
  • If we have made a decent low early in the week, then there are quite a few instances of a rally continuation where we had bottomed earlier in the week and the rally was back on – best recent example is Feb 2014
  • The more recent tendency – really from July 2012 is for a turn to occur on the day before employment or on employment day IF there is going to be a turn – the only times there were turns post employment was Dec 2012 when we rallied and topped at the Fed meeting on the Wed after…. in Dec 2013 when we minor topped on the Monday after and in June 2014 when we minor topped on the Monday after It should be noted that between July 2012 and Sept 2013 – there were also 4 rally continuations

 

RECENT HISTORY

If there is going to be a turn and not a rally continuation for employment (falls almost never continue), the primary turn days have been the day before to the day after employment – of course, the most recent exception to that was February 2014, as we bottomed on the Wednesday before (only the second Wednesday before major bottom since 2007)

Overall, we have had a strong variety of employment turns since January 2013

-Major Bottoms – Five (April 13 (Friday), Jun 13 (Thursday before), July 2013 (day before and day before holiday), November 2013 (Sharp one day fall on Thursday before) and February 2014 – (very os on the Wed before)

-Minor Bottoms – None

-Rally Continuations: Three   (Mar 2013, May 2013 and Sept 2013)

-Minor Tops – 7   (5 on Employment Day – Jan 2013, Feb 2013, Oct 2013, Jan 2014, March 2014 and May 2014 and two on the Monday after – Dec 2013 and June 2014)

Major Tops – 2 (April 2014 and Aug 2013 – Both Employment day – Aug 2013 was also two days post FOMC as well)

RECENT July EMPLOYMENT Reports

LOTS of turns occurring – in fact, we have had one every year since 2009. Quite unusually, the last four years (2010, 2011, 2012 and 2013) we have turned the day before the report 

  1. 2007: Minor top on the Monday after
  2. 2008: Minor bottom on the Friday amidst relentless selling that did not stop until opex week
  3. 2009: A MAJOR bottom post holiday on the Wednesday after – these were the last lows of 2009
  4. 2010: A MAJOR BOTTOM on the Thursday before and these were the last lows of the year as well
  5. 2011: Got VERY OB pre employment after a relentless rally and we had the SUMMER TOP on the Thursday before
  6. 2012: A similarly relentless rally as in 2011 and a MAJOR top on the Thursday before, but this move only lasted 6 days
  7. 2013: (post holiday): MAJOR BOTTOM pre holiday – after a two day 22pt pullback, the market rallied hard on the employment report and rallied for most of the rest of July

Recent employment reports

In 2014, when we have rallied in to the employment report, we have topped on the Friday four of the five times (4 for 5 as February was a bottom) and on the Monday after – once in June 2014. Only April’s top was a MAJOR top.

The 4th of July holiday

Holiday turns have been just fair this year as we have major turned once (post MLK day and opex in January), minor turned twice (New Year’s and Post Good Friday) and not turned twice (President’s Day and Memorial Day)

Overall, the 4th of July is good for MAJOR low turning points (2009 and 2010), but in 2008 the selling continued for another week and it was only a minor low. In 2013, we had a small pullback in to the holiday pre employment and then continued rallying

The holiday is ok for tops though quite dependent on the timing of the employment report– it continued rallying for 2 days and 16 spx points before topping in 2011 – despite being SUPER OB and the market topped the day before in 2012 at the upper bollo band

July employment followed by a 3 day weekend

There is no strong tendency – highly dependent on what has occurred in June with respect to the upper and lower bollo bands – if we have bottomed at some point during June at the lower bollo band then a rally continuation is likely (1998, 1999) (ONE Exception where we just continued lower– 2008). If we have hit the upper bollo band in June, then a correction is likely that ends at the lower bollo band either pre or post holiday (2003, 2009 and 2010) – (One Exception is 2004 where we hit the upper bollo band and then the lower bollo band, but the fall then continued).

  • 1998: NO TURN – Rally continuation Had bottomed at the lower bollo band on Opex Monday in June and a strong rally started that did not end till Monday post July opex
  • 1999: NO TURN – Rally continuation – After a 3 day 43pt post June opex correction, the market began a strong rally that paused on the Monday post employment post holiday, but did not stop until the Monday post July opex   (note: hit lower bollo in early June)
  • 2003: MAJOR pre Employment bottom on Tuesday 1st of July: After falling from opex Tuesday, the market bottomed on the 1st just below the lower bollo band and then rallied through the report and the holiday before peaking on opex Monday in July
  • 2004: No turn – Fall continued – after peaking on the Wednesday post June opex after hitting the upper bollo band, the market slid with no turns until late July
  • 2008:   Minor two day bounce post holiday – after the relentless fall all of June, the market briefly bounced for a day from the lower bollo band, but then continued going down until Opex Tuesday
  • 2009: MAJOR BOTTOM on Wed post holiday: Having corrected since post June employment (having hit the upper bollo band), the market experience a week long bounce that ended on July 1st, the market then proceeded to fall sharply and make new correction lows until bottoming at the lower bollo band on the Wednesday post holiday / post employment.
  • 2010: MAJOR BOTTOM on Thursday before: After topping post June opex at the upper bollo band, the market fell 120pts from the upper bollo band to the lower bollo band and bottomed for the year on the Thursday pre employment

CURRENT CONDITIONS

We are not nearly as OB yet as we were prior to the June employment report, but we have hit the upper daily bollo band with force and almost hit the upper weekly bollo band which may prove difficult to significantly surpass.

In May, we almost hit the lower bollo band before rallying strongly in to the June employment report.

We did not correct as much in June – only to the 20 day MA, so it may be harder for the market to gather significant momentum here. The last time we hit the upper bollo band like we did yesterday was in early April when we major topped on the morning of the employment report.

The price action on Tuesday reminded me quite a lot of the price action on the first Tuesday of March – we minor topped on employment day and fell for a week.

 

FOMC Turning Point Preview for June 2014 (as of midday on Monday, June 16th):

With the FOMC meeting during opex week, I am expecting a more volatile week – possibly a week similar to the March 2014 opex week where we topped on the Tuesday, fell hard on the Wednesday and then rebounded in to a top at the open on opex day. I doubt it will be as volatile as the June 2013 opex / FOMC week where we saw two 50 plus point turns, but with an FOMC meeting, a Yellen press conference and quad opex, I do think there is the possibility of some significant changes of direction this week.

My opex preview will provide a lot of the most relevant opex week info. I do think the low put / call ratio study that can be found here

https://pugsma.wordpress.com/denalis-turning-points/

could be quite relevant for this week.

With Taper concerns prior to last year’s June FOMC, there was plenty of fuel for the volatile opex week that we did experience. I sense there is less fuel this week, but still room for surprise moves – just like we saw in the March 2014 and December 2013 opex weeks.

The history of June FOMC meetings presents a dilemma as prior to 2013, the June FOMC meetings were ALWAYS post opex….   Now this is the 2nd year in a row where the June FOMC is during opex week – so the dynamics are different than for the June FOMC meetings from 2007 to 2012.

As a reminder, in general, the primary turn when opex and FOMC are in the same week is POST FOMC. (see below for the details)

BOTTOM LINE:

I believe the key to this week will be flexibility in one’s view and positioning.

If the SPX does break below last Thursday’s low of 1926 on Monday or Tuesday, it should set up a good bounce play in to the FOMC meeting.

If the low holds, then it is quite possible we are setting up a scenario like the June 2013 FOMC meeting where we bottomed on the Thursday before FOMC / opex week and bounced till the Tuesday of opex week – the day before the FOMC. We then declined in to the MAJOR post opex bottom on the Monday after opex.

-D

Below the Line is a LOT of INFORMATION – I have included it for completeness and perspective

**********************************

FOMC PRIMARY TENDENCIES

  • Since 2007, the Market has made a remarkable number of turns around FOMC – almost 50% of the FOMC meetings – generally combined with Opex or Employment have resulted in Major Tops or Major Bottoms
  • Major tops can occur at any time around the FOMC, but it appears that if the market tops out prior to FED day (as in June 2013 – the day before or a few days after (eg Aug 2013 – Friday after , Sept 2012 – Friday after and April 2012 –Tuesday and April 2011 – Monday after) then we are looking at potentially MAJOR Tops
  • Major bottoms occur if we have fallen significantly from the prior week – bottoms can occur on Fed day or a day or two before (2009 was Monday before),
  • Minor tops seem to occur on the day or the day after
  • The window of opportunity for a FOMC inspired turn point is from 2 days before to 3 days after

There have been a few Major tops when the run post FOMC has continued for 2 or 3 days after (eg April FOMC in 2011 and 2012)

FOMC and Opex

Given the opex / FOMC combo, it actually turns out that FOMC might be a stronger influence than opex – something we have not previously seen. THE FOMC / Opex week combo is something it appears that we will see quite regularly going forward. It occurred in 2013 three times – ALL MAJOR TURNS and it is scheduled to occur FOUR times in 2014!   The only recent time we did NOT see a MAJOR OPEX / FOMC turn was in March 2014 – but it was still a volatile week with close to a major top on opex Friday.

In 2013, June FOMC brought us a MAJOR top the day before the FOMC and then a major bottom on the Monday post opex – the only month with a double turn. Sept 2013 was a straightforward major top on the Thursday post FOMC, while Dec 2013 was a bizarre one minute spike down that does count for a turn and a MAJOR Bottom, but it would be more than impressive if people caught that low.

The March 2014 combo week produced smaller turns with a 24pt pullback on FOMC day and then a stronger bounce in to the opex day top.

Here is a summary of ALL of the FOMC / opex combos since 2007:

  1. Sep 2007: Topped day after Fed (Wed) and fell for 6 days and 40 pts
  2. Mar 2008: Bear Stearns bottom (Mon) on the day before FOMC (125 pt rally)
  3. Sep 08:   Paulson bottom (Thurs) two days after (fell 83 pts and then rallied 138!)
  4. Dec 08:   Major top day after (Wed) and fell to the Monday after -62 pts
  5. Mar 09: : Minor top Day after (Thurs) and bottom on opex day – 40 pts
  6. Dec 09: Minor top on Fed Day (Wed) and bottom on opex day -23pts
  7. Mar 10: Minor top day after Fed (Wed) and bottom on Monday after – 17pts
  8. Dec 10: Minor Top on Fed Day (Tues) and bottom on Opex Thus – 17 pts
  9. Mar 11: Day after (Wed) Major Bottom
  10. Dec 2011: Major topped Friday before and Major bottomed Monday post opex (fell 72 pts)
  11. March 2012: A rare minor top post opex and well past FOMC that just pulled back 27pts in 4 days from the Monday after opex (though there was some manipulation this week due to a JPM leak)
  12. June 2013: Topped on the day before (Opex Tuesday) and fell hard till the Monday after opex (-94 pts)
  13. Sept 2013 MAJOR Top on the day after as the Fed surprised the market with No Taper – alas, the market topped the day after and fell in to the 2nd week of October
  14. Dec 2013 – MAJOR Bottom – a one minute spike down to new lows for the month post the decision announcement and then a super rally of 74 pts in 13 days.
  15. March 2014 – A Minor top in a misdirection week. We gapped up to start opex week – then made a high the day before FOMC and fell hard on FOMC day only to gap up the day after FOMC and an all day rally did not stop till the open on Opex Friday and then we declined for 6 days

Essentially, when Fed Day is during opex – EXCEPT for Mar 2008 (Bear Stearns and VERY OS), Dec 2011 (2 turns during opex) and June 2013 (2 turns during opex with two hourly OB signals leading in to the top) – the turns have all been post Fed…. So 3 turns pre Fed and 12 turns post Fed

RECENT HISTORY –  overall

Since the March 2012 FOMC, there have been 18 FOMC meetings and we have fallen in to just 4 of them (Aug 2012, Oct 2012, March 2013 and April 2014).

In those same 18 meetings, the following has occurred:

  • Major Bottom (4 ): April 2012 (Monday before post opex bottom), May 2013 (an all down day on FOMC day and then we rallied hard), Dec 2013 (new lows for the month with a one minute spike down post the announcement) and April 2014 – bottom on the Monday.
  • Minor Bottom(2): Oct 2012 (2 days after), Mar 2013 (day before as we had fallen from Opex Thursday)
  • Major Top (6): June 2012 (Day before post opex), Sep 2012 (Day after), Jun 2013 (Day before during Opex), Jul 2013 (Two days after post employment) Sep 2013 (Day after during opex) and Jan 2014 (Day after)
  • Minor Top (6): March 2012 (Meeting was during opex, but we did not top till Monday after), Aug 2012 (Monday before), Dec 2012 ( post employment – Fed day), Jan 2013 (Fed day) Oct 2013 (Fed day) and March 2014 at the open on Opex Friday.

Best recent times to buy for the pre FOMC rally

Given that we almost always rally in to the FOMC, any pre FOMC weakness is generally a gift unless we were very OB prior to the FOMC and had topped and were falling harder. The day before the announcement is the absolute best time, but the Friday and Monday before have been good as well.

(NOTE: SPX is borderline still very OB despite last week’s sell off as we are still daily MFI OB for the SPY, so buying the right now carries an extra degree of risk)

  • April 2014: Monday before – opened higher – traded off till noon and then started rallying
  • March 2014: Friday before – rally lasted a week through the FOMC
  • Jan 2014: Volatile Monday before low led to the usual up day on Tuesday before, but then we were down on FOMC day and up on the Thursday (a fake out trade)
  • Dec 2013: Friday before (though the best was the Sunday night in the futures) though you then needed to withstand the one minute downtrade post FOMC on the Wednesday
  • Oct 2013: Wednesday the week before
  • Sept 2013: First trading day of the month
  • Aug 2013: The Friday before for SPX and the Monday before for MID and RUT
  • June 2013: The Thursday before
  • April / May 2013: Opex week almost two weeks before
  • March 2013: The Tuesday before   –
  • Jan 2013: None

FOMC FAKE OUT Trades

I need to mention this one as it seems to be occurring with much greater frequency since March 2013. Previously, I have not seen this occur, but it appears that FOMC day or the Thursday after FOMC are becoming fake out days. The most recent example was March 2014. It does not happen all the time, but 4 times in the last 10 meetings is becoming a notable occurrence. It did NOT happen in April – but given employment was post FOMC – it really did not make sense to have a fake out trade prior to the employment report.   BUT FOR OPEX, I am reasonably certain there will be at least one fake out / misdirection trade this week.

Here is a list of all of the recent fake out FOMC trades

  • March 2014: Down all day on FOMC day, gapped up on opex Thursday and ran all day, topped at Friday’s open and was down for 6 days
  • Jan 2014: Gapped down on FOMC day and fell all day. Gapped up on the Thursday, only to gap down and run again on the Friday and then bottomed on Wednesday of the following week
  • May 2013: Down all FOMC day and then reversed with a gap up on the Thursday and we were off until post May opex.
  • March 2013: Having traded down from opex Thursday to the Tuesday after, we bounced for FOMC day, but then fell all day Thursday, only to reverse higher on the Friday and the rally continued for another 9 days.

RECENT June FOMC meetings

The history of June FOMC meetings presents a dilemma as prior to 2013, the FOMC meetings were ALWAYS post opex….   Now this is the 2nd year in a row where the June FOMC is during opex week – so the dynamics are different than for the June FOMC meetings from 2007 to 2012 – still, here is the history of June FOMC meetings:

  • Until 2013, FOMC meeting was always post opex, so it seems to be much more opex related than FOMC related – turns are always Monday / Tuesday before FOMC or on FOMC day.
  1. 2007: Fell hard post opex, but then bottomed on the day before and rallied in to the MAJOR July top
  2. 2008: Nothing helped this market – we bounced from the day before and rallied during the day, but by the close we had fallen hard and kept going down and we just fell right through FOMC with no noticeable impact from the meeting
  3. 2009: Fell in to opex and post opex and then bottomed on the Tuesday before the meeting and bounced for 8 days and 43 pts
  4. 2010: MAJOR TOP – Had climbed ALL of OPEX against the trend and topped out on the Monday before the meeting and headed down hard in to July employment
  5. 2011: Had made a MAJOR BOTTOM on Opex Thursday and had a very solid bounce, but then topped post the press conference and had a sharp one day 36 pt fall
  6. 2012: Had a STRONG Opex bounce, but then topped on the day before Fed and fell for 50pts and 6 days
  7. 2013 – MAJOR TOP on Opex Tuesday – Day before FOMC – after a sharp rally from the Thursday before, we topped the day before the FOMC and had a sharp fall in to a post opex bottom

FOMC and Press Conferences

There is a press conference this week – generally we have seen rallies in to the press conferences, but the June 2013 and March 2014 press conferences saw more sustained selling post the press conference.   Until we know more about Yellen’s press conferences, I do not think there is a trade-able press conference edge.

CURRENT CONDITIONS (as of midday on Monday, June 16th)

The current conditions are quite mixed. On a Money Flow basis, the SPY is still OB (above 75) – normally this indicates that there will be generally a minor top post FOMC, BUT we have been falling since last Monday, which means that we are looking for what is most likely a pre FOMC bottom and bounce.

Mondays before FOMC have brought at least temporary bottoms twice in 2014 with Monday bottoms in January (a temporary one) and April – a more permanent one.

In January we had a severe post opex correction that appeared to have bottomed on the Monday before the FOMC only for the market to alternate between Red and Green candles that week. (and ultimately headed down a lot the following week)

In April, the post April opex minor top correction ended on the Monday pre FOMC and we rallied in to the FOMC and continued on in to the employment report. The 1851 SPX low on that Monday before the April FOMC has yet to be broken.

If we do take out, last week’s low – look for a low pre FOMC on either the Monday or the Tuesday latest – as we almost always bounce in to the FOMC.

Overall, I think the opex tendencies will most likely provide the strongest edge for the week – not the FOMC.

 

Opex Turning Point Preview for June 2014  (as of cob on Monday, June 16th, 2014):

The June opex period is HERE! Given that it is also FOMC week, there should be some interesting moves (at least, let’s hope there are some interesting moves….)

The key points covered in detail below are as follows:

  • Quad opex week almost always produce major turns with 50 plus SPX pt moves
  • With FOMC during opex week, the primary turn generally occurs post FOMC (but we did top on the day before FOMC in June 2013)
  • There is an FOMC press conference on Wednesday that should help produce some volatility
  • Since December 2013, opex week has not trended. Instead, each opex week has produced at least one mis-direction move of some significance before the primary turn occurred. (this is something new and I have included a special section on this point below)
  • Except for 2009, June opex week has always produced at least one turn of 50 plus SPX points – last year there were two significant turns (Tuesday top and Monday after bottom)
  • The low 10 day MA of the CBOE put / call ratio may mean that something different is in store for opex week given that a pullback has already started

BOTTOM LINE

I believe the key to this week will be flexibility in one’s view and positioning. The markets are in tight, non trending ranges right now; and it is easy to get chopped up.

If the SPX does break below last Thursday’s low of 1926 on Tuesday which seems unlikely, it should set up a good bounce play in to the FOMC meeting. (the opex week misdirection?)

If the low holds, then we are continuing with the trend I highlighted in the pre opex preview where I highlighted the reasonably new occurrence of pullback lows on the Thursday or Friday on the week before opex. In March and May that meant pullbacks on opex Wednesday, while in April, it meant a sharp pullback on opex Tuesday – March and May are more relevant months as we are near the highs and SPY is reasonably OB.

Overall, I think this week is all about how the market deals with the FOMC meeting which leaves two similar, but slightly different scenarios that one should keep in mind:

  • Market Tops on Tuesday pre FOMC (most likely quite late in the day) and pulls back (like in June 2013 and March 2014)
  • Market tops post FOMC on the Thursday (or possibly the Friday) and then falls in to a post opex low or possibly continues falling in to a late June / early July low   (like March 2014)

I did not include a third possibility of a Wed top and pull back as there is no history of a FOMC day top during Quad option expiry week – but it is entirely possible.

Ultimately, the key to this opex week and most opex weeks is to fade extreme conditions (particularly hourly OB and OS) and look for the primary turn to occur from opex Thursday to post Opex (generally, but not always on the Monday – like in June 2013). As SPY is MFI OB and the put / call 10 day MA is so low…. We are near extreme conditions that should mean a top of some sort should occur during this period.   As always, the challenge is to determine when and at what level.

Lastly, remember the recent history of opex week mis-directions.

Ever interesting and somewhat challenging these days as the market is not quite following a typical historical pattern.   I wish I could provide some significant and helpful analogs for this month’s price action – but there is really nothing that is all that relevant.

-D

Opex PRIMARY TENDENCIES

-Opex turns generally occur from the Tuesday of opex week to the Wednesday after.

Opex week mis-directions – do they continue?

A reasonably new tendency that has been occurring during opex is something I am labelling ‘Opex Week mis-directions’. It is not something I track, so I do not have a history of opex week misdirection through the years….. but it is something people should be aware of, as it has now occurred in every opex week since last December.

As this is a new observation, let me explain further. In general, though not always, opex week tends to trend in one direction and then turn – usually from opex Thursday to the Wednesday post opex. While the turns are still occurring during this time window, we are not seeing the trending – like we did in any of the opex weeks between July and November 2013). Instead, we are seeing a move in one direction through Tuesday or Wednesday and then a reversal.

Here is what has occurred during the last 6 opex weeks:

  1. Dec 13 –After an up Monday, we had a down day on the Tuesday and then a spike down low on the Wednesday post the FOMC announcement, (24pts from Monday high to the spike low)
  2. Jan 14 We sold off hard on the Monday sell off (-28 pts), and then reversed in to a Wed high, pulled back on the Friday, only to reverse with a final rally in to the post opex top on Tuesday for SPX and Wednesday for MID and RUT
  3. Feb 14: While February 2014 was generally a trending opex week that did not even have a post opex turn, on the Wednesday there was a one day reversal (23pts) before the market headed higher on the Thursday.
  4. March 14 – The market gapped up on opex Monday and rallied on Monday and Tuesday only for there to be a reversal on Fed day, the Wednesday and a 24pt sell off. The sell off was then reversed again with a gap up on the Thursday and a rally to new highs that eventually ended near the open on opex Friday.
  5. April 14 – While there was no specific reversal day for the SPX as it made its low on the Friday before opex, there was significant volatility on the Monday and Tuesday … till the other indices established their 1pm lows on the Tuesday…. (The SPX fell 28pts on the Tuesday before reversing higher)
  6. May 2014: With a gap up and surge on opex Monday, for a while it looked like the May 2014 opex week would be a repeat of the super strong trend week of May 2013, but the market peaked on Opex Tuesday and pulled back 40pts before making the opex week low at 1862 on Opex Thursday.

RECENT HISTORY –  overall

May 2014 opex week did not conform to expectations of a Friday or post opex week turn, but it did provide significant trading opportunities with the Hourly Sell signal that worked well on opex Tuesday and the Thursday hourly buy signal that signalled the low for the week and opex overall.

Since September 2013, opex has been very consistent with significant rallies at some point in opex week and except for April’s Good Friday opex week / combo low on the Friday before opex, all of the primary turns have been late in Opex week (Thursday or Friday) or post opex. This late in opex / post opex feature has really been a consistent feature since Jan 2013, but instead of repeating last month’s commentary verbatim, I wanted to highlight what has occurred with opex starting with August 2013, the last bearish opex period. (It really has been quite an opex run for the bulls!)

  • August 2013: (minor bottom – Wednesday after) Employment Day top – sharp breakdown on Opex Thursday and a bottom on the Wednesday post opex, a decent bounce and then a fall in to the end of the month (and for the MID and RUT a bottom post Labor Day)
  • September 2013: (Major Top / Post FOMC on Opex Thursday) After the late August / early September bottom, we exploded higher – even gapping up in to Opex week and then thanks to the FOMC, we major topped on Opex Thursday
  • October 2013: (Minor top on Tuesday post opex post delayed employment report) After the second week in October low, except for a head fake in early October, we ran higher through opex with the Thursday being a particularly strong day and thanks to the delayed employment report we just had a minor top on the Tuesday after opex.
  • November 2013 (Minor top on Monday post Opex): After the sharp sell off on the Thursday before opex, the delayed employment report –sent us strongly higher throughout opex week until we ran out of momentum on the Monday after opex
  • December 2013 (FOMC Wednesday – 1 minute spike Major Bottom) – A nice Sunday night panic low in the futures helped the market to a gap higher to start opex week – there was a bit of a fade on Tuesday and then a bizarre one minute sell off post FOMC that created the SPX low for the month of December – and then we were off
  • January 2014 – (MAJOR Top – on the Tuesday post opex and post employment) another late employment report led to a sharp opex Monday sell off, but we were then strongly higher on Tuesday and Wednesday and while there was a slide fade in the SPX on Thursday and Friday, the post holiday animal spirits were initially strong with the SPX topping on the Tuesday while the MID, RUT and NDX topped near the close on the Wed post opex and fell hard in to early Feb
  • February 2014: (No turn – higher in to March employment) After the major pre employment low, Feb opex went true to form and did not have a turn thanks to the President’s Day holiday being at the beginning of the opex period.
  • March 2014 (Minor top on Opex Day post FOMC) – Closed on the lows on the Friday before opex and then gapped up on opex Monday – after a strong post FOMC sell off, we reversed on the Thursday only to top at Friday’s open – but the decline was only for 6 days and even failed to fill the week’s opening gap
  • April 2014: (Major Bottom on the Friday before opex thanks to the Good Friday holiday – bottoms on Opex Tuesday for MID, RUT and NDX) – true to past history, thanks to the Good Friday holiday on opex day, we made an early bottom on the Friday before opex and then rallied in to the Tuesday post opex before having a minor pullback.
  • May 2014: Gapped up on the Monday and ran higher, but got hourly overbought and the advance stalled after new all time highs on opex Tuesday. A mild pullback on the Wednesday accelerated on the Thursday, but the market got hourly oversold and bottomed on the Thursday and the rally commenced again with only the Tuesday post opex the only significant down day between the Thursday opex week low and the Monday post June employment. (note: This opex week counts as a minor top on the Tuesday despite the significant low on the Thursday, as the Thursday low was within the previous week’s range and the Tuesday minor top was more notable)

Summary of Opex Turn stats

  • Major Bottoms (4): Apr 13 (Thurs), June 13 (Mon after), Dec 13 (Wed post FOMC), April 2014 (Thanks to Good Friday, the Friday before opex)
  • Minor Bottoms (1) Aug 13 (Wed after)
  • Major Tops: (3) May 13 (Wed after with a Bernanke speech), Sept 13 (Thurs after post FOMC), Jan 14 (Tues after post holiday)
  • Minor tops (7): Feb 13 (Tues after post holiday), Mar 13 (Thursday of opex week), Jul 13 (Wed after), Oct 13( very minor, but met the criteria on Tues after), Nov 13 (Mon after), March 2014 (Opex Friday) and May 2014 (Opex Tuesday)
  • None (2) – both rally continuations – Jan 2013 and Feb 2014

RECENT Quad / Triple Witch 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. (of course, the last Quad witch option expiry was in March 2014 – which did NOT produce a major turn)

First looking at the bottoms,

  • except for the Bear Stearns bottom in March 08, they have all occurred from the Wednesday of opex week (twice when there was extreme selling to do issues in Asia (Mar 07 and Mar 11) to the Wednesday after opex (just once – Sep 2012).
  • The Monday after opex is slightly favoured as the most likely day for a low, particularly if it is a post opex pullback in a bullish market (iie March 2010 when we just had a minor Wed post FOMC top to Monday after opex pullback)
  • On a pure price basis (as SPY goes ex div on the Friday) – all of these lows except for one, have seen SPY down on opex day but except for March 09 (down 17), there have not been any huge losses on opex day.
  • Generally, but not always, the high of the week is Monday or Tuesday.   Also, at least one, if not multiple hourly buy signals will indicate that the low is near.
  • The bounces out of Quad opex bottoms are almost always significant with 42

pts being the smallest in price and 6 days being the shortest in duration

  • June 2013 a MAJOR Bottom on the Monday post opex after a Tuesday opex top pre FOMC
  • Dec 2013: FOMC on the Wednesday and we spiked down for 1 minute to the low for the month and then we were off – quite a quick MAJOR BOTTOM.

Determining opex tops during Quad expiry is difficult but a lot of the timing seems to be due to the FOMC meeting being after opex – though this has started to change as more and more FOMC meetings are during opex week.

  • They have NEVER occurred on the Monday of opex week and the only Tuesday top was during the extreme bear market downtrade of June 2008
  • Also, Monday is quite frequently the LOW of the week (50% of the time)
  • There has only been ONE post opex top that was NOT related to the FOMC meeting being the week after opex – that was March 2012 – a Monday after minor top. ie. ALL of the tops were DURING opex week except for one as long as the FOMC was not the week AFTER opex!
  • The smallest pullback from a Quad opex top was March 2013 – when there was just a 20pt Thursday to Tuesday after pullback – BUT it should be noted that the FOMC was on the Wed post opex and we almost always rally in to the FOMC
  • Sept 2013: FOMC on Wednesday of opex week – MAJOR TOPPED on Opex Thursday and fell in to October
  • March 2014 – Wed was FOMC day and we were down on Wednesday, but back up on Thursday and then minor topped at Friday’s open and pulled back 42 pts in 6 days.

RECENT June Opex Weeks

  • MAJOR turns in almost every year – 2007 (opex day), 2008 (Tues), 2010 (Mon after) and 2011 (Thurs), 2012 (Tues after / pre FOMC), 2013 (Monday after)
  • 2009 there was a decent Tuesday after bounce for 8 days and 41 pts
  • Definitely watch the Monday and Tuesday after for potential turns.
  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

CURRENT CONDITIONS

  • The SPY is still MFI OB (14 day MFI above 75) – the last time we entered opex week with SPY being MFI OB was May 2013 when we trended higher all week and major topped on the Wednesday post opex.
  • The CBOE equity Put / call ratio study that is posted here:     pugsma.wordpress.com/denalis-turning-points/

o   Does highlight two weeks Nov 2010 and April 2011 that had already started pullbacks prior to opex week – given the pullback from the post employment high last Monday, this might be relevant.

o   If we do not pullback like we did in those two instances, then we need to be on the watch for a MAJOR top late in the opex period per that study.

Overall, the market is due a significant 50 plus point pullback – normally these occur from late April to post June employment. Right now, the SPX has pulled back 30 pts from its post employment high at 1956, so it is possible that opex will aid in the achievement of this expected pullback, but the market has also been pulling back post employment and then rallying in to opex, so the more significant pullback may need to wait until after opex.

 

Low Put call ratio prior to Opex – What might it mean? (as of 13-June 2014):

I am constantly finding new things to research – this stocktwits message got me thinking and I decided to do a little opex investigation.

http://stocktwits.com/message/23695764

The current 10 day MA for the CBOE Equity Put/ Call is .52     (the lowest recorded since Jan 2007 is .45)

The current 5 day MA for the CBOE Equity Put/ Call MA is .50   (the lowest recorded since Jan 2007 is .41)

After a quick scan of the data, I decided to look at all of the instances where the 10 day MA of the put / call ratio was below . .55 at some point in time during the opex period (Thursday week before opex to Wed post opex)

Here is what I found:

  • Since 2007, there have been 12 instances of a very low 10 day MA of Equity only put call ratio occurring during the opex period
  • Here is what happened:

o   MAJOR TOPS during opex – THREE – July 2007, Feb 2011 and Sept 2013

o   MAJOR TOPS post opex – FOUR – Oct 2009, Jan 2010, May 2013 and Jan 2014

o   Minor Pullbacks with opex week highs and pullbacks during opex – Four

  • Mar 2010, Apr 2010, Dec 2010 and Jan 2011
  • NOTE: three of four were in the favourable months and post the April 2010 pullback and rally, the market topped a week later and had the FLASH Crash

o   Fell in to an early low in Opex week – ONE – Nov 2010

o   Fell in to opex week and made a MAJOR BOTTOM post opex – ONE – April 2011

So SEVEN of the 13 instances, opex produced a MAJOR TOP and three of the instances that were in the bullish favourable period between December and the end of Q1 produced minor pullbacks.

Interestingly, the two real exceptions – Nov 2010 and April 2011– are the ones that the current market most closely resembles – the month of October 2010 had limited pullbacks – just like May 2014. There was then a HUGE surge on the Thursday before employment (thanks to the FOMC in 2010 and the ECB in 2014) and another rally on employment day. In November 2010, we topped on employment day while we hit a peak on Monday during this month. In Nov 2010, after two hammer days, we had a 14pt down day on the Friday before opex and then an inside day on Opex Monday before selling off 25pts on opex Tuesday and bottoming.

April 2011 was more of a rally stall post employment when we could not overcome the Feb 2011 highs. The April 2011 was a rare bearish opex week that produced a total pullback of 45pts from the post employment highs.

There are clearly some key differences between both Nov 2010 and April 2011 as June 2014 is a quad witch opex that also has an FOMC meeting – which definitely alters the dynamics of opex week, but those two low put call ratio in to opex week outliers are the two months that most closely resemble this past week’s price action.

Bottom Line:

One needs to be flexible with their positioning during June opex week until the market reveals its true intentions. The opex pattern that I covered in the pre opex review suggested a low on the Thursday or Friday during the week before opex with an outside chance of a Monday low. While this study shows only two instances of a market that fell away prior to opex week – like we have done this week and in that instance, we fell hard to start opex week.

I will do further research and try to provide alternative scenarios in my FOMC and Opex previews that I will publish before the open on Monday.

 

Pre Opex and Pre FOMC preview for June 2014    (as of cob on 11-Jun-14):

There is ALWAYS more research one can do…. And I have a lot of topics that I want to pursue in more detail when the time (and the kids’ vacations…) allows.

Two items that are particularly relevant for the next week relate to opex. If this proves to be helpful, I may add it to my regular previews.

Next week we have Opex week and we also have the FOMC. This is the 5th consecutive Quad witch that we have had FOMC during opex week – so we definitely have some history to help guide us – except for March 2014 – all featured MAJOR TURNS (and in June 2013 we had TWO!).

KEY POINTS (mostly covered below)

-WATCH for pullback lows on Thursday and Friday (possibly Sunday night / Monday – less likely) for a move up in to opex / FOMC

-Do not be too committed to one direction during opex as we have started to develop a habit of having opex week misdirections with strong counter moves against the final trend during the week – this is NEW!

The market is at a lot of extremes right now which is RARE for a June quad witch opex – we have frequently seen these types of extremes in Q1, but I have never observed them in June (ie. since 2007) as we have ALWAYS had a 50pt plus pullback in the SPX between the end of April and post June employment in every year since 2007.

The month of May did not follow the normal turning point script – will June be more of the same?   Only time will tell, but I am cautious…. as I like to have history on my side when trading.

-D

FULL RESEARCH:

The items that I want to note are reasonably new occurrences during opex. They may disappear as rapidly as they appear, but for now I want to highlight:

**Lows made before opex week and then bounces (and many gap ups in to opex week)

**Opex week mis-directions which are re-appearing more frequently.

First the lows made before opex – this really is something that is new; and it is partly due to the fact that we are consistently getting employment turns. After seeing a blog that consistently highlighted the Thursday / Friday the week before opex as pre opex turn times, I went back to check the records and found nothing that remarkable. It occurred 7 times out of 12 in 2012 and 5 times out of the 12 months in October with 1 Wednesday in 2013.   Then we had lows before opex week (and gap ups on opex Monday) in March and April and May for the RUT (but it was a Wednesday low for the SPX) and it got me thinking that maybe, this is yet another thing I need to track, so here goes.

Watch for lows (currently the edge seems to be much more with lows not highs) on the Thursday or Friday before opex and then a rally in to opex. I have highlighted the data from June 2013 – but really the Wednesday before low in October 2013 was the first time we started to consistently see the low turns occur pre opex.

Research Question: Were there noticeable turns on the Thursday or Friday before opex?

2014:

  • May – Not really Minor employment day top– Wednesday low for SPX, Friday low for RUT and then a gap and go on Opex Monday – gap filled on the Thursday
  • Apr – WOW – YES, FRIDAY (Major employment day top) at the close and near the open on Sunday night – were the LOWS and then a HUGE rally (though MID, RUT and NDX did not bottom till the Tuesday. Opex week started with a gap up that filled that day
  • Mar – YES – FRIDAY at the close for SPX (Thursday for MID and RUT) – (Minor employment day top) Also, full moon – Low was actually Sunday night … Market gapped up on opex Monday and rallied most of opex week (except for the Wednesday misdirection) and topped on Opex Friday – Gap was not filled till April
  • Feb: No – (WednesdayPre employment low and rally.) Gapped down on the Thursday before was immediately bought and we rallied essentially till the end of the month
  • Jan: – Sort of – (Minor Late Employment day top on the Friday before opex with a top)then a bottom on Opex Monday – move from from Friday’s high to Monday’s low was 29pts.

2013

  • Dec 2013: Yes, Thursday / Friday double bottom: (Minor top on Monday post employment) Gapped down on Thursday and ran…. Gapped up on the Monday – SPY, but not MID and RUT made new lows on Wednesday and we were off! (Sunday night was actual low)
  • Nov 2013: Yes- Thursday (Huge down day on day before employment for a MAJOR bottom), but that was the low and we rallied in to opex with a BIG up day on the next day – employment Friday
  • Oct 2013 – NO. MAJOR Bottom on the Wed before
  • Sept 2013: No – Red Candle but higher on the Thursday and then minor almost inside day on the Friday
  • Aug 2013: No (MAJOR TOP on employment day)– Gapped down on the Wednesday and Rallied on the Thursday, but Thursday was the high and we were down in Opex. Note had peaked the previous Friday (employment day)
  • July 2013: NO HUGE GAP and GO on the Thursday on that day and we then powered higher in to opex
  • June 2013: Yes, THURSDAY Gapped down and then began a BIG RALLY in to opex and the FOMC. Gapped up and ran on Opex Monday in to an opex Tuesday top

Prior to June 2013, there was the April 2013 Thursday top and a quite a few turns in late 2012, but the edge really has been noticeable since last fall – particularly of late with these gap ups in to opex week.     For me to count a pre opex turn, the SPX would need to get down to at least 1930 and really more like 1915 – 1918 as the turn needs to be visible and really distinguishable from last week’s rally.

Lows before FOMC (as we almost always rally in to FOMC!)

2014:

  • April (employment week): Monday before low
  • March (opex week): Friday before low   (Sunday night futures low)
  • January: Monday before low

2013

  • December: (opex week) Thursday / Friday before double bottom (Sunday night futures low)
  • October – no low before
  • September (opex week) – no low before
  • July – (employment week) Friday before   (Monday before for RUT)
  • June (Opex week) – Thursday before
  • May (no turn before)
  • March – Tuesday before – but after an opex sell off
  • January – No low before

Lastly, opex week mis-directions, I will cover this in more detail in my opex preview, but since December opex, we have NOT been trending nearly as much as we normally do during opex. The general pattern has been to trend in one direction and then turn late in opex week or post opex… but since December, there have been at least two changes of direction good for at least 20 plus SPX points.

I am highlighting this now, as I think it will be VERY important to be flexible in your views and positioning next week.

Note: I will post the FOMC and Opex Previews on Sunday night / Monday morning.

Ever interesting,

 

Employment Turning Point for June 2014          (as cob on June 5th)

Sorry for the delay in providing this summary – I just returned to CET time on Wednesday and recovering from the jet lag of a 6 hour time difference takes some time.

June employment is the most consistent employment report for a turn – there has been a turn of at least 50 SPX points every year since 2007!   Will this year be different?   Possibly, but not likely as we did not get a Memorial Day turn in the SPX, though we did get a small one in the RUT, so we really are due a turn. The two most important days around the June employment report tend to be the Thursday before (and we certainly had a strong day on this Thursday before) and the Tuesday after,

We are at all time highs in the market and at overbought extremes that have not been seen since my research started in 2007. A turn should occur, but this market has definitely surprised a lot of participants on the move higher, so any sell off may not be as big as many might hope for given the fact that the FOMC is occurring during opex week.

The three best analogs for the current market are August 2013 – MAJOR top near the close, June 2007 (6 day 53 pt pullback from an employment day top) and June 2009 (top 4.5pts above the employment day high) during the week post employment).

I think the June 2007 analog is probably the most likely scenario.

It should be noted that we are even more OB than July 2011 – but given it is a quad witch month, I do not think that type of MAJOR top is likely.

BOTTOM LINE:

June employment always seems to produce major turns. With the market at significant extremes much like in August 2013 (see section on current conditions), a turn – most likely on employment day or early next week seems highly likely. This is reinforced by the fact that we have topped on every employment day this year that we have rallied in to. The question is whether it will be a major or minor turn. Given the tendency of the market of late to rally in to opex, especially when the FOMC is during opex week (last time it did not was August 2013 and before that April 2013), it is quite likely that any sell off will probably be minor (despite the history of MAJOR June turns) and the pullback will only be somewhere between 30 and 45 points – much like the pullbacks we saw in March and April of 2014.

The outlier scenario would be a rally continuation in to a MAJOR TOP later in the month. A rally continuation has never happened for June employment since 2007.

-D

PRIMARY TENDENCIES

This is my standard employment report information and it rarely changes. I just update the stats.

DO NOT BE SHORT in to the EMPLOYMENT REPORT unless the technicals overwhelmingly favour a short (ie. July 2011 and July 2012)!

  •  Definitely look for major turning point as they occur almost 50% of the time– generally favors a bottom over a top, but lately even bottoms have been fairly rare – just June 2012, Aug 2012, April 2013, June 2013 and Feb 2014
  • Major Tops are RARE since the volatility of 2011–, but we just had one in April 2014 – before that it was just May 2012 (more FOMC related), July 2012 and August 2013 (again FOMC related)

o   Except for Jul 11 and Jul 12, all of these tops occurred on the Friday or Monday after

  •  Major Bottoms can occur from the Tues before (Oct 2011) to the Tues after (August 2011 and June 2010). ). Employment day has seen some great bottoms like March 2009 and February 2010.
  • If we have made a decent low early in the week, then there are quite a few instances of a rally continuation where we had bottomed earlier in the week and the rally was back on – best recent example is Feb 2014
  •  The more recent tendency – really from July 2012 is for a turn to occur on the day before employment or on employment day IF there is going to be a turn – the only time there was a turn post employment was Dec 2012 when we rallied and topped at the Fed meeting on the Wed after…. And Dec 2013 when we minor topped on the Monday after. It should be noted that between July 2012 and Sept 2013 – there were also 4 rally continuations

RECENT HISTORY

If there is going to be a turn and not a rally continuation for employment (falls almost never continue), the primary turn days have been the day before to the day after employment – of course, the most recent exception to that was February 2014, as we bottomed on the Wednesday before (only the second Wednesday before major bottom since 2007)

Overall, we have had a strong variety of employment turns since January 2013

-Major Bottoms – Five (April 13 (Friday), Jun 13 (Thursday before), July 2013 (day before and day before holiday), November 2013 (Sharp one day fall on Thursday before) and February 2014 – (very os on the Wed before)

-Minor Bottoms – None

-Rally Continuations: Three   (Mar 2013, May 2013 and Sept 2013)

-Minor Tops – 6   (5 on Employment Day – Jan 2013, Feb 2013, Oct 2013, Jan 2014, March 2014 and May 2014 and one on the Monday after – Dec 2013)

Major Tops – 2 (April 2014 and Aug 2013 – Both Employment day – Aug 2013 was also 2 days post FOMC as well)

RECENT June EMPLOYMENT Reports

  • Definitely lots of turns!
  • IN FACT, has produced a MAJOR TURN every year!
  • Thursday before and Tuesday after have been important days in a lot of years
  1. 2007: (holiday week) MAJOR TOP on employment day and a sharp fall to the lower bollo band
  2. 2008: MAJOR TOP the Thursday before and a sharp sell off for 6 days, but we really kept going until an ultimate bottom in July
  3. 2009: Major top on the Thursday after and then down until post opex
  4. 2010: (holiday week) MAJOR BOTTOM on the Tuesday After
  5. 2011: (holiday week) Peaked post holiday on the Tuesday before and then fell until the Thursday of opex week
  6. 2012: (holiday week) MAJOR BOTTOM Fell sharply post holiday and bottomed the Monday after – these were the last lows of the year
  7. 2013: MAJOR BOTTOM After declining from post Memorial Day major top, there was a MAJOR bottom on the Thursday before that produced a 4 day 52pt bounce

Recent employment reports

In 2014, when we have rallied in to the employment report, we have topped on the Friday every time (4 for 4 as February was a bottom). Only April’s top was a MAJOR top.

One important consideration is that the FOMC is during opex week and we have had a strong tendency, particularly of late to sell off post employment for at least a few days (I am excepting January as it was a late employment report and only a one day sell off) and then we have rallied in to opex – May was the shortest sell off just employment Friday to the Wednesday before opex while March and April fell till for a week.

CURRENT CONDITIONS

We closed hourly OB – Hourly OB is a total wild card – sometimes it indicates we are due for a big fall, but other times the rally continues, so that condition does not provide a pre report edge.

We had a trend day up on Thursday. While my records are not perfect on trend days up, I believe there have been just 4 Thursdays where there were trend days higher and the market was making new recent highs ie. we were in rally mode. Three of these four employment reports saw tops on the Friday or Monday (June 09, Jan 10, Nov 10) – the one exception – Sept 2012 where we did not peak till the following Friday. I did not count May 2013, as there had been a hard sell off during the week, particularly in the RUT and then a strong Thursday rally.

On a weekly basis, we are faced with the highest weekly stochastics before the number since my research started in 2007. The previous highest was the MAJOR top in August 2013. Interestingly, four of the top ten highest weekly stochastics saw rally continuations. There were two MAJOR tops and four minor tops (the most recent being Dec 2013)

On a daily basis, we are at the highest RSI since my research began in Jan 2007. Only the 7th highest RSI in September 2012 saw a rally continuation. The previous highest was again August 2013 followed by Nov 2010 (Major top at the close on employment day) and July 2011 – Major top on the day before.

On a money flow basis, we are the most overbought on a daily basis since my research began in Jan 2007. The next highest was Mar 2010 which saw a rally continuation and before that was the MAJOR top on employment day in June of 2007.

 LASTLY, one very important thing to note is that we have actually had a trade down during every employment week since April 2013 with the exception of October (the delayed report), August 2013 (A MAJOR Top!) and this month– It is somewhat unusual to regularly see a trade down at the beginning of the month prior to employment, but it has been occurring (April 13 – down in to the report on the Friday, May 13 – Wed before, June 13 – Thurs before, July 13 – Wed before, September 13 – Tues post holiday for Mid and Rut as they made new lows, November 13 – Thurs before bottom, December 13 – Wed before, January 14 – Mon before, February 14 – Wed before, March 14 – Mon before and April 14 – weakness on the Thursday was reversed post 2:30pm and we rallied in the top post the report. May 2014 – weakness on the Monday marked the pre FOMC low at 1850.

Since we have not seen any weakness – we need to consider that Aug 2013 is a possible analog here.

 

June 2014 Turning Point Preview (as of cob on May 31st ):

While May did provide two of the three turns that were expected – it did not provide the MAJOR TURNS that are normally a part of May trading. Instead, we were treated to

  • A minor top post the employment report
  • A minor top on opex Tuesday which was quite unusual as almost all opex turns have been on opex Thursday or later.
  • An unusual opex week with a Tuesday high and a Thursday low with many indications that there would be a lower low post opex – but the expected low did not materialize
  • A Memorial Day holiday that failed to produce a turn for the first time since 2007

As May did not produce the MAJOR TOP that has been a feature of every spring since 2006, we now need to look to June – thankfully, June is an excellent turn month that has always produced employment, opex and FOMC turns

The key thing to remember with respect to sell in May , is that the period from late April to early June has been an important time for tops every year since 2007.

  • There was a MAJOR TOP two days before the FOMC in late April 2010
  • There were MAJOR TOPS early in the week following the late April FOMC in 2011 and 2012 (both the first trading day of May)
  • There were two post May opex MAJOR tops in 2008 and 2013
  • There were two major tops in early June in 2007 and 2009

Bottom Line: we are due a MAJOR TOP and at least a 50 SPX point pullback as there has always been one since 2007 between late April and post employment in June, but we may need to go higher to produce the sentiment and overbought conditions that would allow a top to form. As Memorial Day failed to produce a turn, the next obvious upcoming turning point is the June employment which is the day after the much anticipated June ECB meeting; and after that there is the potent combination of the FOMC and opex together in the 3rd week of June (though right now that seems a long ways away)

For now, we will need to look at 2007 and 2009 for guidance with respect to the latest spring top turns.

  • 2007: The high for June 2007 was reached on 1-June on the employment report. The initial decline was 53 pts in 6 days – then after a bounce in to opex there was another decline in to the end of June
  • 2009: After exploding higher post Memorial Day, the market stalled post employment and finally rolled over on the Thursday post employment- there was then a three wave 9% correction in to early July.

 

June Turning Points – Important Highlights

 June is a consistent month for turning points as all three turning points regularly produce good trading opportunities.

  • The employment report is the week after Memorial Day – the employment report has produced a MAJOR TURN every year since 2007. As the employment report is the week after the holiday, the likely turn time is from the Thursday before to the Wednesday after
  • Note: We have topped and pulled back on employment day every month this year except for February where we bottomed before the report.
  • Opex and FOMC are in the same week. Last year, this combination produced two major turns with a pre FOMC Major top and a post opex Major Bottom. March 2014 opex was one of the rare times that the FOMC / Opex week combo did not produce a major turn, but it still produced a decent pullback.

Here is to hoping that June produces at least two, if not three good turns, as May was certainly a somewhat disappointing month for turns and sizeable market moves.

-D

Summary History of June Turning Points since 2007

June is normally a month that produces quite a few significant turns around employment, before opex, during opex, post opex and potentially near the end of the month. Expect at least 3 significant turns – the 5 in 2013 was quite extraordinary and was the most we have seen in the month of June since 2007.

  1. 2007 – 4 turns – employment top, Friday before opex low, opex day top, late June low
  2. 2008 – 3 turns – Employment top, Thursday before opex low and opex Tuesday top then a long slide in to July
  3. 2009 – 3 turns – Post employment top, post opex low and end of Month – 1st of July high
  4. 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
  5. 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
  6. 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
  7. 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

 

Memorial Day Holiday Turning Point Preview for May 2014:

(as of midday on Friday, May 24th,2014)

The Memorial Day holiday has been one of the most consistent turn points since 1998.

Prior to 2007, the holiday had a turn in 7 of 9 years – it was ALWAYS a buying opportunity with 1999 and 2000 being MAJOR bottoms, while all of the other years there were minor bottoms with the exception of 2002 and 2003 where there was NO TURN.

Bottom Line:

A turn is expected – most likely a minor top with either a strong gap up on Tuesday that fails or possibly a strong up day that makes its high late in the day on Tuesday and then a pullback starts on Wednesday. Given the employment report and the fact that we almost always rally in to the employment report, the expected pullback will most likely be between 25 and 45 pts and will last until early June.

While it is always possible that there is some unexpected bad news over the weekend that causes a major gap down on Tuesday (European elections), at the time of this writing that seems unlikely…. But if there is one, then if the total move down is sufficient, we could possibly be looking at a turn bottom.

It is also possible – though not likely – that Friday’s price action (and current inability to take out 1902) is a re-test of the May 13th high – much like May 2013’s post Memorial Day price action. A top prior to holidays that does not involve an employment report, opex or year end has NOT occurred since 2007 – thus it is pretty unlikely given that history

I am visiting my family in the US for the next ten days, so my commenting will be limited.

All the best,

-D

Memorial Day Turn History

  • With the exception of 2007, the day after the holiday has been a significant turn every year since 2007. It has never been THE top or THE bottom of a move, but the turn has represented a good trading opportunity
  1. 2007: (employment week) No turn: had a hard fall on the Thursday before the holiday and (Wednesday post opex minor top) and then ran higher and topped post June employment
  2. 2008: Minor Bottom on the day after – fell in to the holiday after a post opex top and then bounced 35pts in 2 days
  3. 2009: Fell in to the Tuesday post Memorial Day and it made a MAJOR bottom as the market exploded higher on Turnaround Tuesday gaining 70pts in just over a week
  4. 2010: (employment week) Minor bottom on the day after had fallen from the Thursday before and then bounced 37 pts in 2 days till the Thursday before employment
  5. 2011: (employment week) After bottoming on the Wednesday post opex, the market bounced hard, but topped out on the day after Memorial Day and fell all the way in to June opex
  6. 2012: (employment week) After bottoming on opex Friday, the market had a choppy rally that topped out on the Day after the holiday and fell for 6 days until the FINAL LOW of the year was reached on the day after employment.

o   2013: MAJOR TOP – this was the re-test of the post opex highs. We gapped up strongly on the day, but found sellers and down we went. Final low was not until the post June opex bottom, but the exit day for this setup was the day before employment. The result was down 75 pts in 8 trading days.

Note: Many research services look at the holidays differently – while I look at the turning points, they are more focused on the returns around the holiday:

http://www.bespokeinvest.com/thinkbig/2014/5/20/memorial-day-week-market-performance.html

Holidays in General

Holidays in 2013 and 2014 have consistently met with expectations for turns – that does not mean all holiday had turns – but the ones that were expected to have turns did have them with the exception of MLK in 2013.

2013: EXCEPT for MLK and Christmas, it was a very good year for turns with 7 of the 9 holidays producing decent turns

  • New Year’s Eve – MAJOR BOTTOM on Day Before – this was the end of the opex correction and we exploded higher at the start of the year
  • MLK (post Opex) – Turn EXPECTED – NO TURN
  • President’s Day (post opex): Minor top on day after holiday – declined for 7 days and 46pts
  • Good Friday: Minor topped on the Tuesday after (when Europe has returned from its 4 day holiday weekend) and declined 34 pts in to the employment report
  • Memorial Day: MAJOR top on the day after – there was a sharp 2 day rally after the even sharp fall post opex. We then fell 75 pts till the day before the employment report
  • July 4th :   (pre employment) Major Bottom the day before – while this qualifies as a major bottom – in reality there was just a small 2 day 22pt pullback prior to the holiday and then we exploded higher for the rest of July on a good employment report
  • Labor Day –MAJOR Bottom for MID and RUT on Day after and for SPX on Friday before – rallied 104 pts in to Septemer Opex Thursday
  • Thanksgiving – Minor top on day after and declined 34 points till the Wednesday after
  • Christmas – (No turn expected) – NO TURN
2014

  • New Year’s Eve – Minor top on day before and declined for 6 days and 26pts
  • MLK: (post opex) MAJOR TOP on Day after for SPX and Wednesday after for MID and RUT – fell for 15 days and 111 pts
  • President’s Day (during opex – No turn expected) Minor 1 day 24pt pullback on the Wednesday after
  • Good Friday: (Turn expected on Tuesday after) – Minor top near close on Tuesday after that was tested on Thursday’s open – final pullback was 34 pts in 6 days.

Current Conditions:

We are due a MAJOR TOP as there has always been one since 2007 between late April and post employment in June. Since there has been NO Major turn as of this writing (unless the 1902 opex top holds), we are due a pullback of at least 50 plus points. The two obvious upcoming turning points are the Memorial Day holiday and June employment which is the day after the much anticipated June ECB meeting.

Unless, the 1902 opex top holds, we will need to look at 2007 and 2009 for guidance with respect to the latest spring top turns.

  • 2007: The high for June 2007 was reached on 1-June on the employment report. The initial decline was 53 pts in 6 days – then after a bounce in to opex there was another decline in to the end of June
  • 2009: After exploding higher post Memorial Day, the market stalled post employment and finally rolled over on the Thursday post employment- there was then a three wave 9% correction in to early July.

 

Opex Day – May 16th comment:

I have looked at this past opex week in a lot of ways…. And this past opex week was really an unusual one.

It is important to remember that we have rallied in to every Memorial Day since 2007 – except for 2008 when we MAJOR TOPPED the Monday before Memorial Day and post opex and to a certain extent 2009 – the opex low was in, but we re-tested it on the Thursday before Memorial Day before taking off. There was also a dip either side of Memorial Day in 2010 – but again the opex low was well set.

So the Big question is whether Thursday marked the low or whether we will see a lower low early in the coming week.

Bottom Line:

All of the historical evidence would point to Friday’s rally being most likely a head FAKE and we will see a better post opex buying opportunity next week – possible like the trade we saw on Opex Tuesday in April.

BUT, given the CURRENT Conditions and the way we have been trading, I must admit I would be surprised, but happy if the market produced such a buying opportunity in the next few days below Thursday’s low.  It does not seem likely, but then the opex week price action was not likely either.

I should emphasize that ALL of my work is based on 7 plus years of indicators, we have been bottoming just a bit earlier than one would have predicted from past history since last August  (The Monday post opex low in June 2013 was the last truly classic low. The Feb employment low was close – but a day early) – so if 2013 / 2014 is a period of early bottoming, then the low is in.

Sorry I can not enlighten you more – all of my work is based on the historical data and this week was different than normal

-D

Opex Week Notes

In doing my market indicator review – it did not seem like Thursday produced that much fear or concern. While we got oversold on an hourly basis, the market was not particularly oversold on a daily basis – not like November 2012 or June 2013, so while we should get a good opex bounce here (which may have already started). I am not expecting this opex to produce  the buy of 2014.

All the price action this week – with the Tuesday top, the late Monday MID sell signal, the Wednesday / Thursday hourly buys would lead me to believe that it is highly likely the low will be post opex with as one would expect, Monday being the most likely day, followed by Tuesday, then Wednesday…..

  • Opex Wednesday Hourly Buy – June 2013 had a great low on the Monday…. Really need a second hourly signal
  • Thursdays down BIG: We have June 2013 (Monday post opex low) and August 2013 (Monday for MID and RUT and Wednesday for SPX low). May 2012 – we had been down all week and were very OS (daily RSI was sub 25)– and we bottomed on the Friday and bounced in to Memorial Day
  • Opex Thursday Gap Downs: Fading this gap rarely works – only time that Thursday was the low was Jan 11 – otherwise look for lows on the Friday (Nov 09, Dec 09) or the next week – May 10, Aug 11, Sep 12, Jun 13 and Aug 13 – expect volatility finding the bottom

One small thing to note, in this BULL market, Tuesday highs for opex week have never meant the primary opex turn was that Tuesday. It is always possible that this time is different, but the only two primary turns on opex Tuesday that were tops were in June and October 2008

Having said that we have had just FOUR Tuesday opex week highs since 2012 – April 2012 (Monday after bottom), November 2012 (Friday bottom), June 2013 (Monday after Bottom), and August 2013 (Wednesday after bottom for SPX, Monday for MID and RUT)

The last time we had a Tuesday high and Thursday low in opex week was in 2011 – we had three of them back then (Jan – Thursday minor bottom, June – Thursday Major bottom, November – Major Bottom post Thanksgiving) There was one in December 2010 – where the Thursday marked the low for quite some time.

In looking at large down days on the Thursday (greater than 10 pts) before opex and then opex was up at least 5 SPX points, this is what I found – NOT A LOT!

-May 2010:  Tuesday after bottom

November 2008 – MAJOR BOTTOM on Opex Day

November 2007:  Major top the Wednesday of Opex week

Basically, we are dealing with VERY unusual opex week price action.

Random Notes:

  • This past Friday we closed almost as overbought as we closed the previous Friday when we gapped up and ran to new all time highs.
  • The bulk of every days price action seems to now be complete by 10:30am. We either do nothing the rest of the day or the ‘move faders’ come in. Only last Wednesday was different. The dip buyers are definitely stronger and more persistent.
  • The recent corrections have been getting shorter and shorter.- we were 6 to 7 days in March in to mid April (3 corrections) and now we have had essentially a 5 day one post the AAPL earnings and possibly a 2 day one

 

Opex Turning Point for May 2014        (as of cob on May 9th, 2014):

The May opex period is HERE!

Of ALL the opex periods, May opex is the most consistent for turns – though with the exception of the May 2008 and May 2013 post opex tops, it has not marked the significant end to a market move, but instead it has produced a strong counter trend move in to a post Memorial Day or early June turn.

For this opex period, it will be particularly interesting to see whether the normal May pattern persists or whether the 2014 (even since September 2013) pattern of opex week rallies occurs. The May pattern and the current failure to take out 1891 on the SPX favors a move lower during opex week while the late 2013 / 2014 pattern favors a rally during opex week – possibly even with a Monday gap up and go in to a late opex or post opex turn.

BOTTOM LINE

There are just two primary scenarios for this year’s May opex week based on recent history and the history of May opex weeks since 2007:

  • The employment day top is a MAJOR TOP and we decline all of the opex period in to an opex day or post opex bottom and bounce in to at least Memorial Day
  • The 2013 / 2014 opex trends persist and the low from this past Wednesday at 1860 holds (or there is a spike low on Opex Monday) and we trend higher all of opex week and turn on opex day or most likely post opex.

Obviously, anything can happen during the opex period, but these are the two scenarios that history suggests are most likely.

The key for success in May opex is generally to respect the early week price action and then look for the turn post opex if the market is rallying or opex Friday or post opex if it is falling. May 2011 is the only year that this strategy did not work. (see below for details)

Hope all of this is helpful perspective,

-D

Opex PRIMARY TENDENCIES

-Opex turns generally occur from the Tuesday of opex week to the Wednesday after.

RECENT HISTORY –  overall

Thanks to the Good Friday / Opex combo study combined with the information on Friday Hourly Buy signals in the MID, April opex played out for the RUT, MID and NDX almost exactly as expected with the early in opex week lows…. And the Friday before low in the SPX was right in line with the history of the Opex week / Good Friday combo. As a plus, we also got a nice minor post April opex top.

Since September 2013, opex has been very consistent with significant rallies at some point in opex week and except for April’s Good Friday opex week / combo, all of the primary turns have been late in Opex week (Thursday or Friday) or post opex. This late in opex / post opex feature has really been a consistent feature since Jan 2013, but instead of repeating last month’s commentary verbatim, I wanted to highlight what has occurred with opex starting with August 2013, the last bearish opex period. (It really has been quite an opex run for the bulls!)

  • August 2013: (minor bottom – Wednesday after) Employment Day top – sharp breakdown on Opex Thursday and a bottom on the Wednesday post opex, a decent bounce and then a fall in to the end of the month (and for the MID and RUT a bottom post Labor Day)
  • September 2013: (Major Top / Post FOMC on Opex Thursday) After the late August / early September bottom, we exploded higher – even gapping up in to Opex week and then thanks to the FOMC, we major topped on Opex Thursday
  • October 2013: (Minor top on Tuesday post opex post delayed employment report) After the second week in October low, except for a head fake in early October, we ran higher through opex with the Thursday being a particularly strong day and thanks to the delayed employment report we just had a minor top on the Tuesday after opex.
  • November 2013 (Minor top on Monday post Opex): After the sharp sell off on the Thursday before opex, the delayed employment report –sent us strongly higher throughout opex week until we ran out of momentum on the Monday after opex
  • December 2013 (FOMC Wednesday – 1 minute spike Major Bottom) – A nice Sunday night panic low in the futures helped the market to a gap higher to start opex week – there was a bit of a fade on Tuesday and then a bizarre one minute sell off post FOMC that created the SPX low for the month of December – and then we were off
  • January 2014 – (MAJOR Top – on the Tuesday post opex and post employment) another late employment report led to a sharp opex Monday sell off, but we were then strongly higher on Tuesday and Wednesday and while there was a slide fade in the SPX on Thursday and Friday, the post holiday animal spirits were initially strong with the SPX topping on the Tuesday while the MID, RUT and NDX topped near the close on the Wed post opex and fell hard in to early Feb
  • February 2014: (No turn – higher in to March employment) After the major pre employment low, Feb opex went true to form and did not have a turn thanks to the President’s Day holiday being at the beginning of the opex period.
  • March 2014 (Minor top on Opex Day post FOMC) – Closed on the lows on the Friday before opex and then gapped up on opex Monday – after a strong post FOMC sell off, we reversed on the Thursday only to top at Friday’s open – but the decline was only for 6 days and even failed to fill the week’s opening gap
  • April 2014: (Major Bottom on the Friday before opex thanks to the Good Friday holiday – bottoms on Opex Tuesday for MID, RUT and NDX) – true to past history, thanks to the Good Friday holiday on opex day, we made an early bottom on the Friday before opex and then rallied in to the Tuesday post opex before having a minor pullback.

Summary of Opex Turn stats

  • Major Bottoms (4): Apr 13 (Thurs), June 13 (Mon after), Dec 13 (Wed post FOMC), April 2014 (Thanks to Good Friday, the Friday before opex)
  • Minor Bottoms (1) Aug 13 (Wed after)
  • Major Tops: (3) May 13 (Wed after with a Bernanke speech), Sept 13 (Thurs after post FOMC), Jan 14 (Tues after post holiday)
  • Minor tops (6): Feb 13 (Tues after post holiday), Mar 13 (Thursday of opex week), Jul 13 (Wed after), Oct 13( very minor, but met the criteria on Tues after), Nov 13 (Mon after), March 2014 (Opex Friday)
  • None (2) – both rally continuations – Jan 2013 and Feb 2014

RECENT May opex weeks

  • Can be a bottom or top – it all depends on the trend during opex week
  • Opex Day or the Monday to Wednesday after always seem to be the turning points
  • Except for 2011 – does seem to trend a fair amount with Friday being either high or low for the week every other year since 2007 (and Monday was the other extreme on 5 of those 8 years)
  • Until 2013, when all but the last of 6 hourly sell signals failed, previously EVERY hourly signal had made money with the exception of an extended Thursday 9:30am buy in 2012 (Friday bottom) and Monday post opex buys in 2011 (Wednesday bottom)
  1. 2007: Minor top on the Wed after opex with a sharp 1 day 27 pt drop
  2. 2008: MAJOR TOP on the Monday after – A 40pt correction ended the Friday before opex and then it was an all up week and a top on the Monday after (note the 1st trading day of May low was not taken out till post opex despite the 40pt correction)
  3. 2009: From a top the Friday before, it was down all week until a minor bottom on opex Friday (but once again, the first trading day of May low was not broken)
  4. 2010 Flash Crash Month: Down all week – strong bounce from opex Day in to the Monday after, but made its final MAJOR Bottom on the Tuesday after
  5. 2011: A good bounce from Tuesday to Thursday during the week, but then a long slide in to a Wednesday after minor bottom and then bounced in to a post Memorial Day top
  6. 2012: Selling was strong all of May and it was an all down week – we got very OS on the Friday and we had an 11 day 44 pt bounce in to a post Memorial Day top
  7. 2013: Seemed like we would go up forever as we rallied relentlessly until Bernanke spoke on the Wed post May opex and we MAJOR topped! And fell in to June opex

CURRENT CONDITIONS

  •  The technicals for the SPX are neutral and do not provide any indication as to what might transpire for opex week.
  • The employment day top at 1891 for the SPX is a key marker and is a good reminder of the last bearish opex week in August 2013. As that high also marks the early May extreme, unless it is taken out during opex week (preferably early in opex week), it is more likely based on the history of May opex that we will see an opex day or post opex bottom and bounce in to at least after Memorial Day.
  • Given the extreme relative weakness in the RUT, the last time we saw this type of weakness was in November 2012 when we made a MEGA bottom on opex Friday
  • This past week’s Wednesday low and Thursday high in the SPX do not provide any strong clues either – though the bulls would have preferred a weekly low on the Friday, as that is what occurred prior to the strong moves higher in the March and April opex weeks.
  • BUT, the new correction low for the RUT on this past Friday at 1091 does provide a reminder of the type of lows that we saw before the March and April 2014 opex week rallies.
  • INSIDE WEEK for SPY with a GREEN candle – this is happening more frequently now. Last week was our third inside week since the beginning of March (10-March, 14-April. 5-May) – all three broke up, but then pulled back at some point in the following week
  • Inside weeks before opex since the bull market began – looks like last week’s green candle may indicate that we break higher.

o   March 2014 (red weekly candle) – Broke higher Opex Friday top

o   August 2013 (red weekly candle) Broke lower – Wed post opex bottom

o   November 2011 (green candle – Broke lower and had the major post opex post Thanksgiving bottom

o   May 2011 (red weekly candle) – Broke down and bottomed on the Wed post opex

o   July 2010 (green candle) – Broke higher and effectively ran till early August

o   May 2010 (red weekly candle) – Broke lower – but had major bottom on Tuesday post opex

o   Feb 2010 (Green Candle) – broke higher and never looked back

o   Dec 09 (Green Candle) – broke higher

o   Aug 09 (Green Candle) – Outside week up

 

Employment Turning Point for May 2014  (as midday on May 1st):

Here is my standardized summary of information for the employment report turning point.

From an employment turning point perspective, this May employment report is a total wild card. Unlike every other month this year, where there was the strong probability of an employment turn, this report may or may not mean something. Sorry not to be a better help, but these are the reasons for my total neutrality:

  • FOMC and employment combined almost always produce a major turn, BUT, the low on Monday at 1850 could have been the low like we saw in November 2009
  • The 1st trading day of May has been one of the monthly extremes for the month of May every year since 2007 – except for 2008. Will this hold true this month with a Thursday before employment top? or are we essentially seeing a rally continuation and does Thursday’s low hold for a long time?
  • The employment report in May, itself, is not generally a strong turning point. Instead, there are other much stronger market influences (eg. The FOMC and the Flash Crash)
  • There was an hourly sell signal at 12:30pm today… but it is not a signal to take as it has been a signal that has had lots of BIG winners and lots of BIG losers.

BOTTOM LINE:

There is no edge for this report. If we make a new high on Friday, we could possible see follow through for the rest of the month. If we do not, then the high on Thursday, May 1st could be in place for quite some time – assuming the 1st trading day of May edge holds.

Personally, my trading accounts will be flat until there is a clear turning point edge.

-D

RECENT May EMPLOYMENT Reports

  •  With the late April FOMC, this is starting to potentially become more significant as employment and the FOMC is generally a very strong combination – need to watch this one.
  • 2007: Had rallied strongly from Tuesday, May 1st and just had a minor top on the Wed after (22pt one day pullback)
  • 2008: Had a strong rally on May 1st , but topped at new highs on the 2nd (employment day), and pulled back 38pts over a week (but did not break the May 1st low)
  • 2009: Rallied strongly from May 1st, but had a Major TOP on employment day (which was on the 8th) and had a one week 51pt downtrade on Employment Day
  • 2010: FLASH CRASH the day before. Employment day was an inside day down. We then reversed on the Monday and had a strong bounce until the Wednesday after
  • 2011: Had already topped on the Monday before the employment report. There was a bounce from the Thursday before employment until the Tuesday after and then we fell in to the post May opex bottom
  • 2012: Had MAJOR topped on the Tuesday before and just slid until the end of opex – this is one of the very rare downtrade continuations that have been seen with the employment report.
  • 2013: Had made a MAJOR bottom on April opex Thursday and while we were down all day on the Wednesday before employment (FOMC day), it was a “fake out” trade and we started rallying on the Thursday and just kept going until after May opex.

RECENT HISTORY

If there is going to be a turn and not a rally continuation for employment (falls almost never continue), the primary turn days have been the day before to the day after employment – of course, the most recent exception to that was February 2014, as we bottomed on the Wednesday before (only the second Wednesday before major bottom since 2007)

Overall, we have had a strong variety of employment turns since January 2013

-Major Bottoms – Five (April 13 (Friday), Jun 13 (Thursday before), July 2013 (day before and day before holiday), November 2013 (Sharp one day fall on Thursday before) and February 2014 – (very os on the Wed before)

-Minor Bottoms – None

-Rally Continuations: Three   (Mar 2013, May 2013 and Sept 2013)

-Minor Tops – 6   (5 on Employment Day – Jan 2013, Feb 2013, Oct 2013, Jan 2014 and March 2014 and one on the Monday after – Dec 2013)

Major Tops – 2 (April 2014 and Aug 2013 – Both Employment day – Aug 2013 was also 2 days post FOMC as well)

CURRENT CONDITIONS

There is no edge to the current conditions. It is possible that Monday’s pre FOMC low at 1850 marks a significant bottom that will not be seen for quite some time, but there are no extremes right now in any of the indicators that might indicate that a top is near or whether we will see a rally continuation.

PRIMARY TENDENCIES

This is my standard employment report information and it rarely changes. I just update the stats.

DO NOT BE SHORT in to the EMPLOYMENT REPORT unless the technicals overwhelmingly favor a short (ie. July 2011 and July 2012)!

Definitely look for major turning point as they occur almost 50% of the time– generally favors a bottom over a top, but lately even bottoms have been fairly rare – just June 2012, Aug 2012, April 2013, June 2013 and Feb 2014

  • Major Tops are RARE since the volatility of 2011–, but we just had one in April 2014 – before that it was just May 2012 (more FOMC related), July 2012 and August 2013 (again FOMC related)

o   Except for Jul 11 and Jul 12, all of these tops occurred on the Friday or Monday after

  •  Major Bottoms can occur from the Tues before (Oct 2011) to the Tues after (August 2011 and June 2010). ). Employment day has seen some great bottoms like March 2009 and February 2010.
  • If we have made a decent low early in the week, then there are quite a few instances of a rally continuation where we had bottomed earlier in the week and the rally was back on – best recent example is Feb 2014
  •  The more recent tendency – really from July 2012 is for a turn to occur on the day before employment or on employment day IF there is going to be a turn – the only time there was a turn post employment was Dec 2012 when we rallied and topped at the Fed meeting on the Wed after…. It should be noted that between July 2012 and Sept 2013 – there were also 4 rally continuations

 

May 2014 Turning Point Preview (as of cob on April 30th ):

April did a very good job of following the turning point script with:

  • Am early month rally in to an employment top
  • A thanks to the Good Friday / opex combo , an expected earlier than normal opex bottom which was spot on with the normal mid April weakness
  • A post opex turn – which fit right with the turning point expectancies of a minor post opex top
  • And to top it all off, we got the beginning of the week weakness that we have seen frequently during employment weeks recently to set up for a nice rally in to the FOMC….

All of the incessant, ‘Sell in May’ punditry has the contrarian in my quite curious as to what will happen this month. They were certainly wrong for 3 weeks in 2013 until we got the late post opex turn. For now, I have absolutely NO view … but would expect to form one after the price action on Friday, May 2nd.

The key thing to remember with respect to sell in May , is that the period from late April to early June has been an important time for tops every year since 2008.

  • There was a MAJOR TOP two days before the FOMC in late April 2010
  • There were MAJOR TOPS early in the week following the late April FOMC in 2011 and 2012 (both the first trading day of May)
  • There were two post May opex MAJOR tops in 2008 and 2013
  • There were two major tops in early June in 2007 and 2009

 

May Turning Points – Important Highlights

 The 1st of MAY has been one of the extreme days in almost every recent year – just 2008 was not – since 2007 (research below)   (this is not a turning point per se – but it is a notable historical fact about trading in the month of May.)

  • The May employment report is one of the few employment reports that does not always have a major turn closely associated with it. This year’s combination of FOMC and employment should make the turn potential much stronger, BUT, this past Monday’s weakness could have been it (just like in Nov 2009), as we have seen more a lot more continuation moves with May employment – the last year there was a real extreme within one day of the employment report was the Flash Crash in 2010.
  • May Opex has always seen significant turns – though not always MAJOR turns in every year since 2008.

o   The turns have all occurred on opex day or post opex

o   Except for 2011, the market has trended in one direction during opex week and then reversed on opex day or post opex

  • Memorial Day is possibly THE strongest holiday turning point. It has been a particularly strong turning point in the last three years, as we have topped the day after the holiday and fallen hard in to June in each year.

Here is to hoping that May is another strong month for the turning points as we have seen in both March and April.

-D

1st TRADING DAY in May – Frequently one of the extremes for the month

If not for many, many months….

Interestingly, the 1st trading day of MAY has been one of the extreme days in almost every recent year – just 2008 was not – since 2007

  • 2007: (the low) Was down all day on 30th of April and continued lower to start the month, but then reversed and May 1st was a hammer day low, which held for the entire month. (The low was not broken till the end of July 2007)
  • 2008 – (almost the low) Had a very strong up day on the 1st of the month – that low held on the post employment dip, but then after soaring to a new monthly high post opex, the market came down hard and broke the 1st of May low
  • 2009 (the low)– market had a red candle on April 30th and traded a bit lower on May 1st, but then caught a bid and rallied strongly for a week in to the employment report – the May 1st low has held ever since – though it was tested in July 2009
  • 2010 (the high) – Flash crash month – after being down all day on Friday, the 30th, the market reversed and had a trend day higher – closed at the highs on Monday, the 3rd only to reverse the next day and down we went in to the Flash Crash and down for the month (That May high was not exceeded until early November 2010)
  • 2011 (the high) Market had a super strong move out of the post April opex bottom – but optimism peaked and we formed the Osama top on Monday, May 2nd and we were down all month (that May 2nd high was not exceeded until Feb 2012)
  • 2012: Amazingly, we had the same script for the third year in a row – with a post April opex bottom and a strong rally that peaked on Tuesday, May 1st and we were down all month (The May 1st high was not breached until the middle of August 2012)
  • 2013: After a very powerful rally out of the opex bottom, the first corrective day was FOMC day, May 1st. The market was down all day in a trend day down – it gapped up the next day and never looked back (The May 1st low was broken briefly for two days either side of June opex and has not been seen since)

 

FOMC Turning Point for April 2014        (as of cob on Monday, April 28th)

FOMC and employment in the same week is not that common – certainly not as common as FOMC and opex – but they have occurred enough for us to know that it is highly likely we will see a major turn this week. Since 2007, there have been 9 FOMC meetings in the same week as employment 6 of the 7 that were not in Jan / Feb had major turns. The only exception – May 2013! The last one was August 2013 when we experienced a major top near the close on employment day.

The last two FOMC (Jan and March) weeks have seen much more volatility than we are normally used to seeing during the FOMC week; and the same can be said for the FOMC weeks in March, May and June 2013 – so it is best to keep alert as we could continue to see similar swings – though it should be NOTED that we have NOT seen these types of swings pre-employment – the one thing we have seen before almost every employment report is at least a one day dip in the week before the report. This is why I suggested that we might see a Monday low this week.

I have purposefully NOT combined my FOMC and employment analysis. I will provide a view on the employment turning point on Thursday morning. What I will note is that the behaviour we have seen this week so far with at least an intraday move down on the Monday below the previous Friday’s lows is something we have now seen in four of the five months this year in the week prior to employment (only April did not). Except for February, we rallied the rest of those employment weeks after the Monday low and topped on the Friday.

In the last FOUR years, the first trading day of May has marked the HIGH or LOW price of the month with 2010, 2011 and 2012 being the highs of the month and 2013 being the low of the month.

Lastly, the period from late April to early June has been an important turn time every year since 2008.

  • There was a MAJOR TOP two days before the FOMC in April 2010
  • There were MAJOR TOPS early in the week following the April FOMC in 2011 and 2012 (both the first trading day of May)
  • There were two post May opex MAJOR tops in 2008 and 2013
  • There were two major tops in early June in 2007 and 2009

BOTTOM LINE:

In just looking at the SPX in isolation, it is quite easy to provide analogs and likely scenarios for this week. As all my work is based on the SPX, that is what I have done with my analysis, but I would be re-miss to point out that the severe move in the spread between the RUT and the SPX is more in line with bearish periods such as August 2011, which makes things a bit less clear this week

The recent history of employment weeks favors a rally the rest of the week and a probable top on Friday. While the recent FOMC weeks suggest that there will be more swings this week before the market’s true intentions are revealed. Lastly, we need to view the price action on Thursday, May 1st with a healthy degree of scepticism given the history of the last 4 years of the first trading day of May – maybe the ECB will have an influence then.

From my perspective, the likely scenarios in order of historical probability are now:

  • Rally through the end of the week and top on Friday (possibly on Thursday at the close) (Aug 2013 analog
  • Volatile week with the extreme post FOMC made on Thursday and then a rally that follows through during May (a combination of the Fake Out trades we have had and May 2013)
  • Monday was the low and we now rally through the employment report and in to the middle of May. (Nov 2009)

Unless the Yellen Fed is totally different, I have been anticipating the rally and a top post her second meeting since her term started in early February and while I see a few contrarian reasons, particularly in the RUT, I am not going to change that forecast at this late date.

-D

n.b. The first Bernanke correction started on May 11th, the day after his second meeting as chair. It lasted for 33 days and resulted in a 9% decline

Below the Line is a LOT of INFORMATION – I have included it for completeness and perspective

**********************************

FOMC PRIMARY TENDENCIES

  • Since 2007, the Market has made a remarkable number of turns around FOMC – almost 50% of the FOMC meetings – generally combined with Opex or Employment have resulted in Major Tops or Major Bottoms
  • Major tops can occur at any time around the FOMC, but it appears that if the market tops out prior to FED day (as in June 2013 – the day before or a few days after (eg Aug 2013 – Friday after , Sept 2012 – Friday after and April 2012 –Tuesday and April 2011 – Monday after) then we are looking at potentially MAJOR Tops
  • Major bottoms occur if we have fallen significantly from the prior week – bottoms can occur on Fed day or a day or two before (2009 was Monday before),
  • Minor tops seem to occur on the day or the day after
  • The window of opportunity for a FOMC inspired turn point is from 2 days before to 3 days after

There have been a few Major tops when the run post FOMC has continued for 2 or 3 days after (eg April FOMC in 2011 and 2012)

FOMC and Employment

  • There has NOT BEEN A MAJOR TURN on every combination of FOMC and employment, but there certainly have been a lot – the most famous one – that is NOT on this list as the FOMC was post employment and so not in the same week was the MAJOR Aug 2011 bottom
  • We have experienced this combination a total of 9 times since 2007. Twice for Jan / Feb combos that do not seem to matter
  • There unfortunately is NO set pattern, though there have been MAJOR MOVES that have occurred with the 7 non Jan/ Feb instances.

o   3 Major TOPS post employment (Nov 2010, Nov 2011 and Aug 2013)

o   1 Major TOP post FOMC (Oct 07)

o   1 Major Bottom pre FOMC (Nov 2009)

o   1 Major Bottom post FOMC and pre employment (Aug 2012)

o   1 Fake out down day (especially for the RUT) that then turned in to a storming rally (May 2013)

  1. Jan 07 / Feb 07 employment: Market had bottomed on the Friday before Fed at the 40 day and then took off on Fed day and then minor topped the Wed post employment
  2. Oct 07 FOMC / Nov 07 Employment: MAJOR TOP on FOMC day and fall continued in to Nov opex – this was the end of the first bounce after the decline from the MAJOR high in the second week of October – touched upper bollo
  3. Nov 09: Major bottom on Monday before FOMC and market just kept rallying until Opex Monday – We had been selling off since post Oct opex and had fallen back to the lower bollo band
  4. Nov 2010: MAJOR TOP at the close on employment day – two days after FOMC and day after Bernanke Op Ed – There had been a very strong 3 day rally from FOMC day to employment day thanks to the Bernanke op ed and then we re-traced the whole rally and them some in to Nov opex – spent one day totally above upper bollo
  5. Nov 2011: Extremely volatile – MAJOR BOTTOM on the day before FOMC and then MAJOR TOP on the Tuesday post employment The TOP was the more significant one as we then fell 120 pts in to the MAJOR Nov 11 post opex bottom (Topped when it rallied 62 pts in a week to the 200 day MA from below
  6. Aug 2012: Minor Top on the Monday before FOMC and then a MAJOR Bottom on the Day after FOMC as we soared on employment day – it is rare to trade down through the FOMC like this, but it did – but it was the FAKE OUT trade – Hit the upper bollo on the Monday before FOMC and traded down a bit below the 20 day MA
  7. Jan FOMC / Feb 2013 employment: Miniscule one day top on Fed day and then another minor top on employment day – really nothing here as we were in a super bullish enviroment
  8. May 2013: A total fake out with a significant fall (particularly in the RUT) on Fed day and then a storming rally that did not stop till post May opex   – NO TELL
  9. July 2013 / August 2013 employment: A MAJOR TOP post FOMC on employment day – No real tell except MID breached upper bollo

RECENT HISTORY –  overall

Since the March 2012 FOMC, there have been 17 FOMC meetings and we have fallen in to just 3 of them (Aug 2012, Oct 2012 and March 2013).

In those same 17 meetings, the following has occurred:

  • Major Bottom (3 ): April 2012 (Monday before post opex bottom), May 2013 (an all down day on FOMC day and then we rallied hard) and Dec 2013 (new lows for the month with a one minute spike down post the announcement)
  • Minor Bottom(2): Oct 2012 (2 days after), Mar 2013 (day before as we had fallen from Opex Thursday)
  • Major Top (6): June 2012 (Day before post opex), Sep 2012 (Day after), Jun 2013 (Day before during Opex), Jul 2013 (Two days after post employment) Sep 2013 (Day after during opex) and Jan 2014 (Day after)
  • Minor Top (6): March 2012 (Meeting was during opex, but we did not top till Monday after), Aug 2012 (Monday before), Dec 2012 ( post employment – Fed day), Jan 2013 (Fed day) Oct 2013 (Fed day) and March 2014 at the open on Opex Friday.

Best recent times to buy for the pre FOMC rally

Given that we almost always rally in to the FOMC, any pre FOMC weakness is generally a gift unless we were very OB prior to the FOMC and had topped and were falling harder. The day before the announcement is the absolute best time, but the Friday and Monday before have been good as well

  • March 2014: Friday before – rally lasted a week through the FOMC
  • Jan 2014: Volatile Monday before low led to the usual up day on Tuesday before, but then we were down on FOMC day and up on the Thursday (a fake out trade)
  • Dec 2013: Friday before (though the best was the Sunday night in the futures) though you then needed to withstand the one minute downtrade post FOMC on the Wednesday
  • Oct 2013: Wednesday the week before
  • Sept 2013: First trading day of the month
  • Aug 2013: The Friday before for SPX and the Monday before for MID and RUT
  • June 2013: The Thursday before
  • April / May 2013: Opex week almost two weeks before
  • March 2013: The Tuesday before   –
  • Jan 2013: None

FOMC FAKE OUT Trades

I need to mention this one as it seems to be occurring with much greater frequency since March 2013. Previously, I have not seen this occur, but it appears that FOMC day or the Thursday after FOMC are becoming fake out days. The most recent example was March 2014. It does not happen all the time, but 4 times in the last 10 meetings is becoming a notable occurrence. Here is a list of all of the recent fake out FOMC trades

  • March 2014: Down all day on FOMC day, gapped up on opex Thursday and ran all day, topped at Friday’s open and was down for 6 days
  • Jan 2014: Gapped down on FOMC day and fell all day. Gapped up on the Thursday, only to gap down and run again on the Friday and then bottomed on Wednesday of the following week
  • May 2013: Down all FOMC day and then reversed with a gap up on the Thursday and we were off until post May opex.
  • March 2013: Having traded down from opex Thursday to the Tuesday after, we bounced for FOMC day, but then fell all day Thursday, only to reverse higher on the Friday and the rally continued for another 9 days.

RECENT April FOMC meetings

  1.  Slightly opex related, as we frequently make an opex low on the Monday post opex and then rally in to the FOMC so we almost ALWAYS seem to be rallying in to this meeting –
  2. 2007 (May meeting) – minor 2 day 35 pt Fed disappointment top, but then rally resumed
  3. 2008: Had been rallying since opex bottom – Actually fell from the Monday before Fed in to Fed day and bottomed on Fed day and rally continued
  4. 2009 – Minor top from Day after Fed Day for 1 day and 23 pts
  5. 2010 – MAJOR TOP on the Monday before FOMC – rally had been super extended and we topped the Monday before had a very volatile week and then eventually fell in to the FLASH CRASH
  6. 2011: Rallied from post opex Monday through FOMC until we MAJOR TOPPED on the Monday post FOMC
  7. 2012: Due to a late opex – we had a MAJOR BOTTOM on the Monday before FOMC and then rallied in to a MAJOR TOP on the Tuesday post FOMC
  8. 2013 – Had made a MAJOR bottom on the Thursday of April opex and rallied strongly. Oddly, this day had a bearish engulfing Red candlestick that saw selling ALL day…. But we bottomed at the close and were off on a 100 plus pt rally during the next 3 weeks.

CURRENT CONDITIONS

The current conditions are not clear cut in comparison to most previous FOMC meetings. We have had our post opex pullback just like in late July 2013 and we have employment at the end of this week – the same as back then, so that is the analog we most likely are following. (We then topped on employment Friday)

BUT, in January we had a more severe post opex correction that appeared to have bottomed on the Monday before the FOMC only for the market to alternate between Red and Green candles that week. (and ultimately headed down a lot the following week)

The two things that favour a more bullish outcome this week is the employment day on Friday, which almost always sees a rally and the fact that we have been alternating Red and Green candle weeks since the beginning of March.

Last comments

  •  It is Yellen’s second meeting and the Dow is up 7% since the day she took office. The rally so far has lasted 87 days, which is now above the average length of initial Fed chair rallies. Only Bernanke’s 99 day rally which ended the day after his second meeting and Miller’s 189 day rally coming out of a bear market have been longer We are right on the the median in terms of % gain.
  • Bernanke’s initial rally lasted 99 days and took the market up 6.9%.

 

The History of Opex Bottoms since 1998  (as of 14-Apr-2014):

There are NO GUARANTEES with the markets, but one of the nearest ones is the opex turn, especially when one is trading down in to opex week and the market is oversold.

(By far the BEST turning point set up is when we are daily MFI OS during the opex period– it does not happen often, the last time was Nov 2012 and it produced quite the bottom! We are not daily MFI OS as of 11-Apr-14.)

As of Friday, April 11th, we are nearing oversold, but not super oversold. While I will cover in detail in more normal opex review the various scenarios, in this comment, I really just wanted to cover the facts of down trades in to opex. When opex arrives and the market has fallen quite a lot for most of the month, there is always either:

  • A significant bounce either during opex week or from before opex week into opex week:  Best example: The rally in the S&P 500 on Friday October 10th at 840 to the top near the opex on Opex Tuesday, October 14th at 1044
  • Or a very serious bottom: Best example – The crash of 1987 low was on the Tuesday post opex

And per my previous comments, EVERY year since 2008 has seen an April Opex bottom.

As a reminder the general period for opex turns is from the Tuesday of opex week (though the Bear Stearns bottom on Opex Monday in 2008 is the exception that helps prove the rule as it was just a 4 day trading week) to the Wednesday after opex unless there is a holiday post opex…. (in November2011, we had the double whammy of a post opex / post holiday bottom on the Friday after Thanksgiving)

The primary focus of my detailed research is from 2007, but I have also done extensive research of every year since 1998 to confirm my research and provide further historical evidence.

Below, I have provided a review by year of all of the significant opex bottoms when we were falling in to opex and the daily stochastics on the Thursday before opex week begins was near or below 30.

Bottom Line: For the April 2014 opex week, it is historically highly likely that there will either be a substantial bounce in to or in the early part of opex week or a bottom that produces a significant rally some time between opex Monday and the Wednesday post opex.

I can not tell you when the bounce or bottom might occur or how significant a bottom might be made, but there almost certainly should be a bounce or bottom based on the historical patterns.

If you need any clarifications or have any questions, I will be happy to try to respond.

-D

REVIEW by year of Markets when trading down significantly in the week before opex:

Opex Bottoms

  • Dec 2013: Bounced in to opex week a bit and then had a spike down and major bottom on Opex Wednesday
  • November 2012: This opex bottom ended the longest sell off in either 2012 or 2013 as we had topped in mid September. The bottom came on opex Friday at 1343 and we have not come near those prices since that low.
  • May 2012: We topped on the 1st of May and were down all month. Opex week saw selling all week (down 59pts on the week), but we bottomed on opex Friday and bounced 44 pts in to the day after the Memorial Day holiday
  • April 2012: We had sold off from April 2nd and then bounced for a week from April 10th to opex Tuesday, April 17th – our final low – which was ultimately just a 9 day bounce of 57 pts occurred on the Monday post opex
  • June 2011: After topping on May 2nd, the market had been down for almost two months, so it was getting oversold on both a daily and weekly basis. We bottomed on Opex Thursday and ran 94 pts in to the 7th of July top
  • August 2010: This is a good example of both a rally during opex, but more importantly a significant post opex bottom – we had traded down the whole week before opex. We bottomed on Opex Monday and bounced 31pts in to the Wednesday and then fell to a MAJOR bottom on the Wednesday post opex
  • Feb 2009: We had fallen since the Monday post employment, this was really just a post opex bounce, but we did rally 51 pts from the Monday after opex until the Thursday post opex.
  • July 2008: We had seemingly fallen forever (though in reality just since the Monday post May opex). This opex week, we made the summer low on opex Tuesday
  • March 2008: The market had been selling off since late Feb. After a strong two day bounce post March employment, the market fell hard again and bottomed on Opex Monday (during a Good Friday week) as Bear Stearns was rescued over the weekend.
  • Jan 2008: This sell off started in late December, but bottomed on the Tuesday post opex / post holiday and we had a strong 136pt bounce
  • August 2007: This is an important one to remember, as many people thought the bull market had ended during July opex as the market fell out of bed in early August (down almost 8%). The selling did accelerate during opex week until there was a HUGE GAP DOWN on Opex Thursday…. We bottomed at 1372 and eventually rallied to new highs in October.
  • June 2006: While there had been a post May opex bounce, we had effectively been falling since early May…. The low for the year was made on the Wednesday of June opex (though it was re-tested again during July opex)
  • July 2004: This one realistically qualifies as just a small opex bottom – though it counts as a bottom – we had topped in late June and fallen most of the month – we bottomed on the Monday post opex and bounced for two days to just below the opex week high before falling for 3 more days.
  • Mar 2004: We topped in early March and fell till opex Tuesday – bounced till opex Thursday and then fell to the low for March and April on the Wed post opex.
  • Sept 2002: A significant fall most of the month as the bear market neared its end. We made a low on the Tuesday post opex , bounced just less than 5% and then continued down in to the final bear market low in the second week of October.
  • July 2002: This was closest to the most extreme opex cascade since 1998 as we plunged for most of the month and all through opex until the slide was arrested on the Wednesday post opex and we bounced close to 25% in to the August highs.
  • Jan 2002: Bottomed on the Wednesday post opex and post holiday and had a weak just under 2% bounce before resuming the fall.
  • August 2001: Bear market time – bottomed on the Wednesday post opex at the lower bollo band and bounced to the 20 day MA.
  • June 2001: Bottomed on opex day and bounced 3%

Significant rallies during opex week or in to opex week

  • Oct 2012: We had topped on employment Friday and had sold off the whole following week. The bounce came from the Friday before opex week to Opex Thursday, we then sold off hard to new lows for the pullback.
  • October 2008: Best example of a massive rally in to opex as we bounced 204pts from the Friday before opex in to the open on Opex Tuesday
  • June 2008: The market had been selling off since post May opex, but it bounced 35pts from the Thursday before opex week in to opex Tuesday.
  • November 2007: After topping on October’s FOMC meeting the market fell hard till opex Monday then bounced 53pts to the open on Opex Wednesday before the descent resumed.
  • Dec 2002: This month exhibited fairly common bear market behaviour as we were down from early in the month – bounced hard to start opex week, topped on the Tuesday and then fell to new lows before bouncing again on opex Thursday
  • June 2002: Here we fell hard all month, but bottomed on the Friday before opex and bounced over 5% in to opex Tuesday
  • April 2002: Fell most of the month – made a low on opex Monday and bounced from the lower bollo band to the 20 day MA on opex Wednesday and then the fall continued
  • October 2000: We had been falling really since early September. We bottomed on opex Wednesday and bounced almost 10% in to November.

Opex Exceptions:

  • Mar 2001: This is one month where the market bounced around during opex a bit, but it must be noted that while it had a Monday to Tuesday post opex bounce, there was a Tuesday FOMC meeting that sent the market down further and we did not bottom until the Thursday post opex almost 6% below the opex day close. This was the low for the spring and summer. We then bounced over 21% in to the May high.
  • Feb 2001: We had fallen most of the month, and the post holiday / post opex bounce did not occur till the Friday; and the bounce was just under 4% (this is close to acceptable, but is really one day late to be included within the bounds of opex turn reasonableness)
  • September 2000: This was a month of selling and while there were opex related bounces (Opex Wednesday to opex Thursday and Monday post opex Monday to Tuesday post opex), they were less than 2% bounces. This is probably THE month that is the exception that helps prove the rule.

A reminder on other recent significant opex bottoms

  • Aug 2013: Traded down the whole month, but market did not really sell off till opex Thursday. The SPX bottomed on the Wednesday after and bounced 31 pts in 4 days before making a more significant bottom on August 30th
  • June 2013: While there was a significant sell off from the end of May high, there was a BIG bounce from the Thursday of the week before opex to Opex Tuesday and then we fell in to the MAJOR bottom on the Monday post opex
  • April 2013: We topped on the Thursday the week before opex and fell hard on Opex Monday, the final low was on Opex Thursday and then we had our huge spring rally

 

Opex Turning Point for April 2014  (as of cob on April 11th, 2014):

This is the standardized information that I am looking to provide prior to each of the primary turning point events. Feedback is welcome.

BOTTOM LINE

The turning points are working again, and we are following the April pattern of early month weakness. If this pattern holds, then we should see the April pattern of an opex bottom occur during this opex period as well. The wild card is the Good Friday holiday on opex day. If the markets were open on Friday, then the likely expected turn would be late in the week or early in the week after opex, but in the 5 prior instances since 1987 when the market was closed on opex day, the lows were earlier.

The three most likely scenarios given the history of April opex, opex overall, opex when opex day is also Good Friday and the current technicals are as follows:

  • Bottom early in opex week, rally strongly in to next week, top and pull back (best analog – March 2008 Bear Stearns bottom opex week) before resuming rally in to the FOMC meeting on April 30th
  • Bounce early in the week, but then continue down in to a post opex / post holiday bottom and then rally in to the FOMC meeting on April 30th (this would follow the usual April post opex bottom and the market behaviour around Good Friday in April 2012)
  • Bottom early in the week and rally in to the FOMC meeting on April 30th. (V reversal that we have seen quite a few times in 2013 and 2014)

At a minimum, there should be a good bounce this week. There really have only been a few bear market exceptions in 2000 and 2001. While it is possible, I attach a low likelihood to two other possibilities which would be a minor bounce during the early part of opex week and then a resumption of the downtrend continuing past Wednesday, April 22nd or a downtrend past April 22nd that sees no bounces whatsoever.

As always, anything is possible, but the scenarios that I have laid out are what history suggests is most likely.

Hope all of this is helpful perspective,

-D

Opex PRIMARY TENDENCIES

-Opex turns generally occur from the Tuesday of opex week to the Wednesday after, though the Bear Stearns bottom on the Monday of March 08 opex is the exception that proves the rule type of thing. During that week in 2008, there was no opex Friday, as it was the Good Friday holiday, which is the same configuration of the April 2014 opex week.

My previous comments on the Good Friday / Opex Day combination were as follows:

While there are only 5 data points from 1987 – it appears that a good bottom is made some time from the Wed before opex week o Opex Tuesday, there is then a sharp rally – depending upon when the low was made there might be a Wednesday red candle and a Thursday green candle and then in 3 cases (2008, 2003 and 1987) we made post holiday / post opex tops and pulled back. While in the other two cases (2000 and 1992) we made opex Wednesday tops and pulled back – not a lot to go on – BUT all had those early bottoms and rallies during opex and that opex Wednesday looks to be a good time to sell for a short term trade.

RECENT HISTORY –    overall

While March opex week provided a bit of a headfake with the down FOMC day, the inside day up on opex Thursday and then the final top on Opex Friday, it overall did conform to expectations that:

  • Any top would be less than a 50pt move in the SPX
  • The top would occur post FOMC

Since January 2013, the most consistent feature of opex has been the fact that the turns (if there is going to be one) have been on the Thursday of opex week or post opex week – this is a new occurrence, but with the exception of the two months with no turns and the Dec 2013 spike low on FOMC Wednesday, all of the turns have displayed this characteristic

  • Major Bottoms (3): Apr 13 (Thurs), June 13 (Mon after), Dec 13 (Wed post FOMC)
  • Minor Bottoms (1) Aug 13 (Wed after)
  • Major Tops: (3) May 13 (Wed after with a Bernanke speech), Sept 13 (Thurs after post FOMC), Jan 14 (Tues after post holiday)
  • Minor tops (6): Feb 13 (Tues after post holiday), Mar 13 (Thursday of opex week), Jul 13 (Wed after), Oct 13( very minor, but met the criteria on Tues after), Nov 13 (Mon after), March 2014 (Opex Friday)
  • None (2) – both rally continuations – Jan 2013 and Feb 2014

RECENT April opex weeks

  • We have consistently seen the market making bottoms during the April opex period and setting up for a very nice rally in to at least late April (2010), if not a lot longer (2013). Prior to 2013, we were consistently making bottoms on the day after (2010, 2011 and 2012) or two days after (2009), but now we have during the week bottoms in 2008 (Tuesday) and 2013 (Thursday)
  • Hourly signals have worked well from Wednesday onwards – but signals early in the week have been losers
    1. 2007: Very minor top on the Monday after for 14 pt 1 day pullback – basically a rally continuation
    2. 2008: MAJOR BOTTOM on Opex Tuesday – last chance to buy was the Tuesday after
    3. 2009: Very hourly OB on opex day and fell in to a MAJOR Bottom on the Tuesday after
    4. 2010: Minor bottom on the Monday after and a week long rally
    5. 2011: MAJOR Bottom on the Monday after and a 14 day bounce
    6. 2012: MAJOR Bottom on the Monday after and an 8 day bounc
    7. 2013: MAJOR BOTTOM on the Thursday and a MEGA bounce that let no one in – ie. almost no pullbacks

CURRENT CONDITIONS

The technicals as of the close of business on Friday, April 11th indicate that either a bottom will occur during this opex period or there will be a bounce during the early part of opex week and then a further decline in to a post opex / post holiday bottom. We are not that significantly oversold, but we are nearing that point.

    • The last time the daily stochastics were this low entering opex week was Dec 2013 when we made a Major bottom on Opex Wednesday.
    • Prior to that we need to go back to November 2012 when we made a major bottom on opex Friday.
  • On Friday, April 11th, we finally got an hourly buy signal on the Friday before opex week. This is only the 9th such signal since the bull market began in March 2009. This is NOT a signal to take, as there should be a lower low on opex Monday (October 2012 is the only exception) and then possibly a Tuesday bounce…. But one should look for a MAJOR OPEX LOW late in the week:
  • Nov 2010 was Opex Tuesday – the earliest bottom
  • Just two rallies – Oct 2012 and Sept 2011 – bearish counter trend opex weeks …. And only Oct 2012 did not provide a buy on the Monday.
  • The 8 previous opex periods that had a Friday before opex hourly buy signal were Nov-12,Oct-12,Sep-11,Jun-11,Apr-11, Mar-11, Nov-10 and May-10

MARKET OBSERVATIONS post close of business on April 9th, 2014

While not following it precisely the way it played out in 2012 or 2013, we are still following the pattern of early April weakness that has been fairly consistent since 2008 with the exception of the super bullish rally that ended in April 2010 and was followed by the Flash Crash.

In my research, I have looked at quite a few patterns to try to identify the most likely path for the market. Below you will find a look at the early April sell offs, April opex and the upcoming Good Friday holiday on opex day.

Bottom Line

Overall, I still remain of the opinion that we are following the Bernanke 2006 rally analog in a reasonable manner, and I am expecting a significant top and pullback of approximately 10% this spring, as the Fed chair study showed how consistently we have initial rallies during the start of a new Fed Chair’s term followed by a sharp pullback. The initial Bernanke top occurred in early May 2006 post his second meeting. Interestingly, while the magnitudes are different, in 2006, we quite consistently swung from the lower daily bollo band to the upper band throughout the first 3 months of Bernanke’s term. We have been following a similar pattern, to a certain extent, in 2014 as well.

While we may have already bottomed on Tuesday, if we have it would once again be quite an unusual employment report turn – anything is always possible, but just like the February 2014, Wednesday before employment bottom, it would be unusual.

Just based on historical patterns, a reasonable fit for all of the April turning point studies that are below would see one of the following two scenarios play out:

  • Bottom on the Thursday or Friday before opex week, bounce in to opex week, top on opex Wednesday and bottom again on the Monday after and then rally in to the FOMC meeting on April 30th
  • Fall in to an early Opex week bottom (Monday or Tuesday), pullback on the Wednesday and resume the rally on the Thursday in to the Fed meeting on April 30th

There is a third scenario that I think is much less likely based on the history of April opex weeks since 2007, which would be a post April opex top and pullback – I think it is less likely, as we have not made any opex tops in April since 2007.

So far, April is bringing the expected twists and turns, lets hope for a few more.

-D

***********************

Here is the detailed research:

Good Friday coinciding with Option Expiry

For only the sixth time since 1987, the stock market will be closed on opex Friday for the Good Friday holiday. While the data points are limited, – it appears that a good bottom is made some time from the Wed before opex to Opex Tuesday, there is then a sharp rally prior to the holiday.

THIS RARELY HAPPENS – so there is not much to go on, but it is something to be aware of…

While there are only 5 data points from 1987 – it appears that a good bottom is made some time from the Wed before opex to Opex Tuesday, there is then a sharp rally – depending upon when the low was made there might be an opex Wednesday red candle and a Thursday green candle and then in 3 cases (2008, 2003 and 1987) we made post holiday / post opex tops. While in the other two cases (2000 and 1992) we made opex Wed tops and pulled back – not a lot to go on – BUT all had those early bottoms and rallies during opex and that opex Wed looks to be a good time to sell for a short term trade.

  • 2008 – March – Bear Stearns – Major bottom on Opex Monday – was a volatile week – but initial rally topped on the Monday post opex and post holiday and fell 46pts in a week – note – the Wednesday of opex week opened higher ran for a bit and then was down all day and then we rallied all day on the Thursday
  • 2003 – April: Coming out of the MAJOR bottom in March, the market pulled back from the Monday post April employment till the Thursday after and then a strong rally started and there was just a minor Wed post opex / post holiday top that lasted for 2 days note – the Wednesdayof opex week opened higher ran for a bit and then was down all day and then we rallied all day on the Thursday
  •  2000 – April – market had COLLAPSED down almost 190pts from April 10th to April 14th (the Friday before opex)- Rallied to opex Wed (112 pts!) and then pulled back 40pts to the Monday post opex / post holiday before another 75pt rally – note – the Wednesday of opex week opened higher ran for a bit and then was down all day and then we rallied all day on the Thursday – but then gapped down on the Monday and then started rallying again
  • 1992 – April – fell to the low for the year on the Wed post employment / pre opex at the 200 day MA – we rallied all the way from the lower bollo to the upper bollo (5%) and hit the high for opex on the Wednesday – closed there on the Thursday as well and then fell almost 2% on the Monday post holiday – the pullback lasted a bit longer and then we continued with a rally in to May.
  •  1987 – April – topped on the Tuesday post employment and fell almost 9% in a week bottoming on opex Tuesday – rallied hard on both the Wed and Thurs – stalled on the Monday after, but then surged again on the Tuesday after – topped out and 6 days later re-tested the opex lows – VOLATILE!!!

April Opex

  •  We have consistently seen the market making bottoms during the April opex period and setting up for a very nice rally in to at least late April (2010), if not a lot longer. Prior to 2013, we were consistently making bottoms on the day after (2010, 2011 and 2012) or two days after (2009), but now we have during the week bottoms in 2008 (Tuesday) and 2013 (Thursday)
  • Hourly signals have worked well from Wednesday onwards – but signals early in the week they have been losers
  1. 2007: Very minor top on the Monday after for 14 pt 1 day pullback – basically a rally continuation
  2. 2008: MAJOR BOTTOM on Opex Tuesday – last chance to buy was the Tuesday after
  3. 2009: Very hourly OB on opex day and fell in to a Minor Bottom on the Tuesday after
  4. 2010: Minor bottom on the Monday after and a week long rally
  5. 2011: MAJOR Bottom on the Monday after and a 14 day bounce
  6. 2012: MAJOR Bottom on the Monday after and an 8 day bounce
  7. 2013: MAJOR BOTTOM on the Thursday and a MEGA bounce that let no one in – ie. almost no pullbacks

RECENT MAJOR EMPLOYMENT TOPS – how long did they last?

  • First, while it was NOT a Major top, we should note, March 2014 – we topped on employment day and traded down for a week and closed near the lows before rallying in to opex
  • Aug 2013 – this was a slow motion sell off initially lasted the whole month of August, but did little in the first week and did not really accelerate to the downside till the latter part of August opex week. Given the large differences in the initial sell off, I do not think this is an applicable analog
  • July 2012 – This is an interesting one – we were SUPER OB prior to the number and we fell hard for a week before bottoming on the Thursday, rallying in to opex and then peaking on opex Thursday and falling hard again. Thanks to the Good Friday study, this is one I will be watching closely.
  • Mar 2011. I have noted this one, as it was the only employment day since 2007 that we topped on employment day and finished down for the day – we bottomed on Opex Wednesday and then had a strong rally in to early April.

What was somewhat significant about Friday is that we closed down on the day (we only close down on the day of the employment report 38% of the time since 2007) and also the size of the drop, as it was the 7th largest drop on employment day since 2007. May 2012 is the only one to point out here, as the others were bottoms or pre March 2009 – here we declined the whole month of May in to a June bottom, I doubt that will happen here, but it is one to be aware of.

EARLY APRIL SELL OFFS

Since 2008, we have had early April sell offs pre or post April employment. Here is what happened:

  • 2008: Topped on Monday post employment (the 7th) and traded down for 8 days in to Opex Tuesday
  • 2009: Topped on April 2nd fell till April 7th, rallied hard till April 17th and then had a sharp pullback till 21-April (Tuesday post opex)
  • 2011: Stalled post employment and topped on Wednesday the 6th for most indices, then fell till the post opex bottom on April 18th
  • 2012: Topped on April 2nd and fell through employment to April 10th, bounced till April 17th and then fell till making a double bottom with the low on April 10th post opex on April 23rd then rallied in to the lower spring high on Tuesday May 1st
  • 2013: Topped on April 2nd, bottomed on employment day, April 5th and then rallied to new highs on April 11th before falling for a week to the opex Thursday bottom

Bottom Line: The early April weakness is pretty consistent and based on the above, the best time to buy during the month of April to enjoy a comfortable rally is from Opex Tuesday to the Tuesday post Opex.

 

Employment Turning Point for April 2014 (as of midday on Wednesday, April 2nd):

Here is my standardized summary of information for the employment report turning point.

BOTTOM LINE:

While there is the precedence of tops on April 2nd for the last two April (2012 and 2013) employment reports, we are not that severely OB to call for a pre employment top. We do share some of the same technical similarities to March 2014 (particularly the upper weekly bollo band that we are approaching and the daily technical strength) where we minor topped at the open on employment day.

We also do share some similarities technically to the period prior to the April 2012 and April 2013 employment reports (Minor tops in March opex and daily technical configurations), but both of those reports really provided better trading opportunities from the long side post the report (at the open for 2013 and post holiday on the Tuesday after for 2012).

Best approach from a turning point view is to lighten longs here (SPX 1890) in expectation that there will be a better buying opportunity post the report or possibly pre the report if we get a Nov 2013 type sell off thanks possibly to Thursday’s ECB meeting.   I am also mindful of the history of great buying opportunities when opex day falls on Good Friday I know that is two weeks away, but it is something to be aware of.

As always, the markets will do what they want to do…. History was a good guide (in general) for March and I see no technical reason for that to change as the turning points for the month of April have been quite consistent for most years with the exception of 2007 when we were coming out of the major March opex bottom.

-D

PRIMARY TENDENCIES

 DO NOT BE SHORT in to the EMPLOYMENT REPORT unless the technicals overwhelmingly favour a short (ie. July 2011 and July 2012)!

Though it should be noted that we have fallen in to the last two April employment reports after topping on April 2nd.

  • Definitely look for major turning point as they occur almost 50% of the time– generally favors a bottom over a top, but lately even bottoms have been fairly rare – just June 2012, Aug 2012, April 2013, June 2013 and Feb 2014
  • Major Tops are RARE since the volatility of 2011– just May 2012 (more FOMC related), July 2012 and August 2013 (again FOMC related)
    • Except for Jul 11 and Jul 12, all of these tops occurred on the Friday or Monday after
    • Major Bottoms can occur from the Tues before (Oct 2011) to the Tues after (August 2011 and June 2010). ). Employment day has seen some great bottoms like March 2009 and February 2010.
  • If we have made a decent low early in the week, then there are quite a few instances of a rally continuation where we had bottomed earlier in the week and the rally was back on – best recent example is Feb 2014
  • The more recent tendency – really from July 2012 is for a turn to occur on the day before employment or on employment day IF there is going to be a turn – the only time there was a turn post employment was Dec 2012 when we rallied and topped at the Fed meeting on the Wed after…. It should be noted that between July 2012 and Sept 2013 – there were also 4 rally continuations

RECENT HISTORY

If there is going to be a turn and not a rally continuation for employment (falls almost never continue), the primary turn days have been the day before to the day after employment – of course, the most recent exception to that was February 2014, as we bottomed on the Wednesday before (only the second Wednesday before major bottom since 2007)

Overall, we have had a strong variety of employment turns since January 2013

-Major Bottoms – Five (April 13 (Friday), Jun 13 (Thursday before), July 2013 (day before and day before holiday), November 2013 (Sharp one day fall on Thursday before) and February 2014 – (very os on the Wed before)

-Minor Bottoms – None

-Rally Continuations: Three   (Mar 2013, May 2013 and Sept 2013)

-Minor Tops – 6   (5 on Employment Day – Jan 2013, Feb 2013, Oct 2013, Jan 2014 and March 2014 and one on the Monday after – Dec 2013)

Major Tops – 1 (Aug 2013 – Employment day – also 2 days post FOMC as well)

The LAST tops before employment day were:

  1. May 2012 on the Tuesday before when we had an extended rally post the late April FOMC and topped on Tuesday, May 1st (we touched the upper bollo that day, but were not terribly OB)
  2. July 2012 – Topped on the day before – we were VERY OB, particularly the RUT which had spent the entirety of the Wed and Thursday before employment above the upper bollo band

 

LASTLY, one very important thing to note is that we have actually had a trade down during every employment week since April 2013 with the exception of October (the delayed report and August (The MAJOR Top!) – It is somewhat unusual to regularly see a trade down at the beginning of the month prior to employment, but it has been occurring (April 13 – down in to the report on the Friday, May 13 – Wed before, June 13 – Thurs before, July 13 – Wed before, September 13 – Tues post holiday for Mid and Rut as they made new lows, November 13 – Thurs before bottom, December 13 – Wed before, January 14 – Mon before, February 14 – Wed before, March 14 – Mon before)

RECENT April EMPLOYMENT Reports

  • Minor turns in general – but really seems to depend upon what happens during March opex – minor tops in March opex then quite possibly a pullback in to a post employment bottom (exception – April 2010 when it was a full on rally) Major bottoms in March opex then a possible top post opex and a pullback in to April opex (except 2007). Key thing to remember is that there always seems to be a great long side trading opportunity in April opex (except 2007)
    • 2007: Rally continuation (MAJOR bottom in March opex)
    • 2008: MAJOR TOP on the Monday after pulled back until April opex bottom   (MAJOR bottom in March opex)
    • 2009: Minor top: Had a HUGE rally on the Wednesday and Thursday before – topped on the Thursday before, April 2nd, – but closed on the highs on Friday…. But below Thursday’s high and pulled back to the Tuesday after and then rallied in to opex   (Minor top in March opex)
    • 2010: Rally continuation until the end of the month – just unstoppable
    • 2011: Minor top on the Wednesday After and fell in to an April opex bottom (MAJOR bottom in March opex)
    • 2012: Topped on April 2nd and fell to a Minor bottom on the Tuesday after post holiday – (minor top post March opex)
    • 2013: Sharp sell off as well at the beginning of the month starting on April 2nd, but MAJOR BOTTOMED at the open on Employment Day and rallied till the Thursday after (minor top in March opex)

March opex was a minor top so we do share similarities to April 2010, 2012 and 2013.

CURRENT CONDITIONS

The two extraordinary things going for the bulls right now have small sample sizes, but they argue for an April to remember for the bulls.

  1. WHAT HAPPENS for the EMPLOYMENT Report when there was an unfilled up gap during the previous opex?
  • All were VERY Bullish until at least the end of the following month – even the pullbacks in the following opex months were minor – just amazing to discover the powerful impact of an unfilled opex Monday up gap – Yes, the sample size is small … but 4 for 4 is impressive
  • -Jan 2012 (Feb 2012 employment report) – Rally continued the whole month of February for the SPX… but the MID and the RUT stalled quite a bit post the report
  • -Sep 2010- this opex week gap was not closed till August of 2011! (Oct 2010 employment report – a late report) – rally continued with just minor pullbacks until post the FOMC and post employment in Nov 2010
  • -Feb 2010: (March 2010 employment report) – Market exploded on employment day and just had a small pullback during March opex
  • April 2007: (May 2007 employment report) There was just a minor pullback on the Wed post the report and there was really NO significant pullback until the June report
  1. And there is the point I made in my April Turning Point Preview

And one thing from the ‘no longer know what to make of it file….’

  • Last week, SPY, IWM, and QQQ (but not MDY) all got daily MFI OS. This is a good bullish tell, particularly during opex, BUT prior to Aug 2013, there was almost always a re-test of the low or new lows before the market began rallying again (18 re-tests out of 22 instances since Jan 2007). The last MFI OS period where we saw the re-test (in fact multiple re-tests was June 2013) Since then, we have had three daily MFI OS instances – only one of which took more than a day to hit the low and NONE of these instances (Aug 2013, Oct 2013 and Feb 2014) saw the low re-tested.
    • So do we revert to the normal re-test pattern seen prior to Aug 2013
    • OR are we now in a ‘new normal’ of perpetual V reversals to super bullish extended runs to new highs.

Last week’s opex inspired pullback re-set many of the daily and weekly indicators. On a monthly basis, we are near uncharted territory – but I do not know people that can make money in the short term from Monthly charts. On a weekly basis, there are a few negative divergences, but I will leave it to the real technicians to interpret what to expect from those divergences

As for the dailies, a further rally on Thursday will put us in the same technical territory that we saw prior to the minor tops in January and December among other months.

Lastly, I should note that we are approaching a fairly flat weekly upper bollo band, we encountered this also in March and the rally stalled. I noted this in last month’s employment preview, as an indicator that a minor top was nearby and it duly happened on employment day. I am not a bollo band expert, but I believe strong moves through them are very rare, so it is something to consider with respect to your positioning.

 

April 2014 Turning Point Preview (as of cob on Monday, March 31st ):

While I find all months to be interesting from a turning point perspective, this April (and early May) should be particularly interesting for a number of reasons:

  • For only the sixth time since 1987, the stock market will be closed on opex Friday for the Good Friday holiday. While the data points are limited, – it appears that a good bottom is made some time from the Wed before opex to Opex Tuesday, there is then a sharp rally prior to the holiday. (more on this next week)
  • On April 30th, we will have the announcement from the end of Yellen’s 2nd Fed meeting. We will also be nearing the end of the period cited in my Fed chair study for the end of the initial Yellen rally and a significant pullback. The initial Bernanke rally was 99 days and was then followed by a 9% pullback. The only other longer initial rally was the Miller one of 189 days, but that was coming right after a very bearish period for equities.
  • In the last four years (somewhat validating the ‘Sell in May…’ saying…, we have had significant April / May tops in the market (we also had one in 2008! The Monday after May opex and the Bernanke top in May 2006!)
    • 2010: Topped two days before April Fed meeting (26-Apr) – experienced the Flash Crash and eventually fell in to early July
    • 2011: The Osama top 3 days after the April Fed (2-May) meeting and we fell in to June before the bounce in to the summer top in July
    • 2012: Major topped on the 1st of May (right between the FOMC and the May employment report) and fell in to the early June low
    • 2013: The most substantial April opex bottom we have seen in recent years set the market off on an epic rally, which finally ended with Bernanke’s speech to Congress post May opex. (22-May – the latest of the tops)
  • April opex – since 2008 – has been THE MOST CONSISTENT month for Opex turns – it has produced a bottom and buying opportunity every year. The bottom in 2013 produced the largest gain, but only one of the last six years has produced a rally less than 50 SPX points (37 pts in April 2010)
  • Lastly, we need to navigate April employment and thanks to 2013, we need to raise a caution flag. The last two years, we have peaked on April 2nd and fallen in to the April employment report – since the bull market this is a rare phenomenon.(June is the only other month that shows such weakness) It may be nothing, but I will provide a few other points about this warning in my employment comment tomorrow.

Part of the comment I wrote last week was the following:

-A correction should last till at least Tuesday, more likely at least till some time between Wednesday and Friday. Every quarter last year, we had at least a bounce in to quarter end (the latest start to one was the Monday, Sept 30th to Tuesday Oct 1st rally last fall) After that, we need to be watchful for the third consecutive decline in to April employment….

Given Monday’s rally, I think this is particularly true, especially if we have another strong rally on April 1st or April 2nd.   I am not advocating a short in to the employment report – just being my normal cautious self. The turning points in March with the employment top and the post FOMC, but somewhat rare opex day top worked well in March, so until they start to consistently fail, they should be respected.

One last thing for the bulls – that start of opex week gap is still open Historically, if it does not fill soon, it is extremely bullish as 4 of the 5 times since 2007 that we gapped up to start opex week and did not fill the gap during opex week, we ran and ran (April 2007, Feb 2010, Sep 2010, Jan 2012 – only one that did fill post opex? Sept 2013 – a week post opex)

And one thing from the ‘no longer know what to make of it file….’

  • Last week, SPY, IWM, and QQQ (but not MDY) all got daily MFI OS. This is a good bullish tell, particularly during opex, BUT prior to Aug 2013, there was almost always a re-test of the low or new lows before the market began rallying again (18 re-tests out of 22 instances since Jan 2007). The last MFI OS period where we saw the re-test (in fact multiple re-tests was June 2013) Since then, we have had three daily MFI OS instances – only one of which took more than a day to hit the low and NONE of these instances (Aug 2013, Oct 2013 and Feb 2014) saw the low re-tested.
    • So do we revert to the normal re-test pattern seen prior to Aug 2013
    • OR are we now in a ‘new normal’ of perpetual V reversals to super bullish extended runs to new highs.

I have no idea – just thought I would put that one out there as well.

Here is to hoping that April is another month of interesting (twists and) turns,

-D

FOMC Turning Point for March 2014          (as of cob on Tuesday, March 18th):

Apologies for the delay in providing this info – the daylight savings time differential that will exist till March 31st is continuing to hamper my productivity.

BOTTOM LINE

Tuesday’s trading has eliminated the possibility of a bottom like in March 2007 or March 2011, so it is now all about when we top and how far we pull back.  Given the preponderance of turns post FOMC, the highest probability is for a top post the FOMC on Wednesday or Thursday am and then a pullback to early next week.

Per my previous comments, OPEX and FOMC have produced MAJOR turns all three times in 2013, but as there has not been a MAJOR March Opex or FOMC top since 2007, the historical probabilities assign a slight probability to having a Sept 2013 style major top.  The foreign markets are still a wild card…. Though they seem to be fading in to the rear view mirror.

From my perspective, the likely scenarios in order of historical probability are now:

  1. Double turn Minor top on Fed Day or Day after and a pullback of 25 to 40 pts till the Monday or Tuesday post opex and then a renewed rally (March 2010 and March 2013 analogs)
  2. Rally extends further to a post opex Monday top and then pulls back all of next week  (Mar 2012 analog)   (This would be unusual as most FOMC tops are right around Fed day)
  3. Tuesday’s high  was a more significant top like in June 2013 and we decline in to a post opex bottom  (June 2013 is the only analog )
  4. Rally continuation with no discernible pullback – has never happened with an FOMC meeting in opex week, so I doubt it will happen here, but for completeness sake I am mentioning it.

Must admit I am disappointed that the market did not give us one of those great March opex buy setups like in March 2007 and Mach 2011 – it looked possible all of last week….  But there were clearly too many people out there looking for such a move.

-D

FOMC PRIMARY TENDENCIES

-Opex and FOMC are the two most consistent turning points and when they are in the same week, there has been consistently a major turn with the vast majority of turns occurring post opex.

  • Since 2007, the Market has made a remarkable number of turns around FOMC – almost 50% of the FOMC meetings – generally combined with Opex or Employment have resulted in Major Tops or Major Bottoms
  • Major tops can occur at any time around the FOMC, but it appears that if the market tops out prior to FED day (as in June 2013 – the day before or a few days after (eg Sept 2012 – Friday after and April 2012 –Tuesday and April 2011 – Monday after) then we are looking at potentially MAJOR Tops
  • Major bottoms occur if we have fallen significantly from the prior week – bottoms can occur on Fed day or a day or two before (2009 was Monday before),
  • Minor tops seem to occur on the day or the day after
  • There have been a few Major tops when the run post FOMC has continued for 2 or 3 days after (eg April FOMC in 2011 and 2012)

Press events have all seen rallies in to the event (except for June 2013) – IF we have not fallen before, then selling the Monday after has been very profitable (Nov 2010, Apr 2011) or Tuesday, April 2012   –

RECENT HISTORY –    overall

Since the March 2012 FOMC, there have been 16 FOMC meetings and we have fallen in to just 3 of them (Aug 2012, Oct 2012 and March 2013).

We have also rallied in to every press conference with the exception of June 2013.

In those same 16 meetings, the following has occurred:

  • Major Bottom (3 ): April 2012 (Monday before post opex bottom), May 2013 (an all down day on FOMC day and then we rallied hard) and Dec 2013 (new lows for the month with a one minute spike down post the announcement)
  • Minor Bottom(2):  Oct 2012 (2 days after), Mar 2013 (day before as we had fallen from Opex Thursday)
  • Major Top (6): June 2012 (Day before post opex), Sep 2012 (Day after), Jun 2013 (Day before during Opex), Jul 2013 (Two days after post employment) Sep 2013 (Day after during opex) and Jan 2014 (Day after)
  • Minor Top (5):  March 2012 (Meeting was during  opex, but we did not top till Monday after), Aug 2012 (Monday before), Dec 2012 ( post employment – Fed day), Jan 2013 (Fed day), and  Oct 2013 (Fed day)

RECENT HISTORY –  Opex and FOMC

Given the opex / FOMC combo, it actually turns out that FOMC is stronger than opex – something we have not previously seen. The FOMC / Opex week combo is something it appears that we will see quite regularly going forward. It occurred in 2013, three times – ALL MAJOR TURNS and it is scheduled to occur FOUR times in 2014!

In 2013, June FOMC brought us a MAJOR top the day before the FOMC and then a major bottom on the Monday post opex – the only month last year with a double turn. Sept 2013 was a straightforward major top on the Thursday post FOMC, while Dec 2013 was a bizarre one minute spike down that does count for a turn and a MAJOR Bottom, but it would be more than impressive if people caught that low.

Here is a summary of ALL of the FOMC / opex combos since 2007:

  • Sep 2007:  Topped day after Fed (Wed) and fell for 6 days and 40 pts
  • Mar 2008:  Bear Stearns bottom (Mon) on the day before FOMC (125 pt rally)
  • Sep 08:   Paulson bottom (Thurs) two days after (fell 83 pts and then rallied 138!)
  • Dec 08:   Major top day after (Wed) and fell to the Monday after -62 pts
  • Mar 09:  :  Minor top Day after (Thurs) and bottom on opex day  – 40 pts
  • Dec 09:  Minor top on Fed Day (Wed)  and bottom on opex day -23pts
  • Mar 10:  Minor top day after Fed (Wed) and bottom on Monday after  – 17pts
  • Dec 10:  Minor Top on Fed Day (Tues) and bottom on Opex Thus  – 17 pts
  • Mar 11:  Day after (Wed) Major Bottom
  • Dec 2011:  Major topped Friday before and Major bottomed Monday post opex (fell 72 pts)
  • March 2012: A rare minor top post opex and well past FOMC that just pulled back 27pts in 4 days from the Monday after opex (though there was some manipulation this week due to a JPM leak)
  • June 2013:  Topped on the day before (Opex Tuesday) and fell hard till the Monday after opex (-94 pts)
  • Sept 2013 – MAJOR TOP day after – traded down 83 pts in 20 days.
  • Dec 2013 – MAJOR Bottom – a one minute spike down to new lows for the month post the decision announcement and then a super rally of 74 pts in 13 days.

Essentially, when Fed Day is during opex – EXCEPT for Mar 2008 (Bear Stearns and VERY OS), Dec 2011 (1 turn pre FOMC and one turn post opex)  and June 2013 (2 turns during opex with two hourly OB signals leading in to the top) – the turns have all been post Fed….  So 3 turns pre Fed and 11 turns post Fed

RECENT March FOMC  meetings

 

Generally the March FOMC meeting seems to be much more related to opex dynamics than FOMC – it really depends upon when the meeting occurs in relation to opex:

  1. 2007: Minor top (post opex meeting) – 2 days after, but we had had a MAJOR BOTTOM during opex week – so the pullback was needed FOMC or not
  2. 2008: MAJOR BOTTOM Monday of opex week (day before FOMC)
  3. 2009: Minor top day after FOMC (during opex) – pulled back till opex Friday – just 2 days down – but was down 45 pts
  4. 2010:  (during opex) – we were very OB and peaked the day after and fell till Monday post opex – definitely opex related
  5. 2011:  (during opex) MAJOR Bottom the Day after – thanks to Japan Tsunami panic – All opex related
  6. 2012:  (during opex) Minor top on Monday post opex – but there were some fun and games post the FOMC as there was  an info on FOMC day that reversed a post announcement fall– pullback was just 4 days and 27pts
  7. 2013: (post opex) Minor bottom the day before and minor top on FOMC day and minor bottom the day after – talk about volatile – all thanks to Cyprus and post opex dynamics

CURRENT CONDITIONS

 

Post Tuesday’s trading, it is clear we are headed for a top of some sort.  Prior to Tuesday’s strong rally there was no set pattern with Monday’s large gap up for opex weeks that contained the FOMC, but now that we have rallied so far this week, we are (as of Tuesday’s close) showing a greater similarity to both the June 2013 meetings (top day before) and the Sep 2013 meeting (top day after)

We got a weak hourly sell signal on Tuesday afternoon – pre FOMC these do not have a strong track record – we got this same signal in June 2013 (small winner – but we did top that day)) and Sep 2013 (flat trade – thanks to a Fed day morning sell off).  In general hourly sell signals on opex Tuesday are not one to take.

There is just no short term edge based on historical patterns.

Last comments

  • It is interesting to note that this is the highest the S&P has been before a Fed meeting by over 80 SPX pts.
  • It is Yellen’s first meeting and the Dow is up 6.2% since the day she took office.  The rally so far has lasted 45 days, which is at the lower end of initial Fed chair rally durations – though we are close to the median in terms of % gain.
  • Bernanke’s initial rally lasted 99 days, but only took the market up 6.9%.
  • It will also be Yellen’s first press conference, so I would expect that there will be some movement as the market gets used to her utterances. In general, per above, we rally in to press conferences.

Opex Turning Point for March 2014          (as of cob on Monday, March 17th):

Apologies for the delay in providing this update – a loss for three weeks of an hour before the markets open and our last winter weekend away in the mountains here in Switzerland have gotten me behind.

This is my second attempt to provide someone standardized information prior to each of the primary turning point events.  Feedback is welcome.

BOTTOM LINE

OPEX and FOMC have produced MAJOR turns all three times in 2013, so we need to expect the same might occur this month, though given the employment top, I am doubtful that any top will be long lasting – even if it is a major one (more than 50pt move).  While there are numerous possible scenarios still post Monday’s price action, there really are just two primary scenarios on the table that are supported by the historical evidence. Obviously, anything is possible, it is just not likely based on the FOMC / Opex history:

  1. Major Bottom post FOMC like in March 2007 and March 2011 or possibly (though less likely) a spike low like in Dec 2013
  2. Double turn with an FOMC top and then a more lasting bottom post opex  (like in June 2013 and March 2010)

I have discarded the possibility of a Sept 2013 style major top as we are no longer super OB, though it is always a remote possibility. A minor top like in March 2012 post opex is also possible, but not likely as MOST minor tops post FOMC occur on Fed day or the day after Fed day. The March 2012 top post opex was again an exception that helps prove the rule.   Is it possible that we could just have another rally continuation?  Not really. As there is no known instance since 2007 of two consecutive months of rally continuation and there has been no rally continuation when the FOMC meeting is during opex week.

Hope all of this is helpful perspective,

-D

Opex PRIMARY TENDENCIES

Opex and FOMC are the two most consistent turning points and when they are in the same week, there has been consistently a major turn with the vast majority of turns occurring post opex.

-Opex turns generally occur from the Tuesday of opex week to the Wednesday after, though the Bear Stearns bottom on the Monday of March 08 opex is the exception that proves the rule type of thing.

-FOMC turns generally occur plus or minus two days around FOMC, though there have been a few tops (but no bottoms) that have occurred early in the week post FOMC.

RECENT HISTORY –    overall

Surprisingly, February opex did not have a turn – months without an opex turn are rare – but we also had one in January 2013 before that you need to go back to July 09 (which had an oversold major bottom the week before)

Since January 2013, the most consistent feature of opex has been the fact that the turns (if there is going to be one have been on the Thursday of opex week or post opex week – this is a new occurrence, but with the exception of the two months with no turns and the Dec 2013 spike low on FOMC Wednesday, all of the turns have displayed this characteristic

  • Major Bottoms (3):  Apr 13 (Thurs), June 13 (Mon after), Dec 13 (Wed post FOMC)
  • Minor Bottoms (1) Aug 13 (Wed after)
  • Major Tops:  (3)  May 13 (Wed after with a Bernanke speech), Sept 13 (Thurs after post FOMC), Jan 14 (Tues after post holiday)
  • Minor tops (5): Feb 13 (Tues after post holiday), Mar 13 (Thursday of opex week), Jul 13 (Wed after), Oct 13( very minor, but met the criteria on Tues after), Nov 13 (Mon after)
  • None (2) – both rally continuations – Jan 2013 and Feb 2014

Right now, the technicals do NOT provide an edge in terms of favouring a top or a bottom this week – some times like in November 2012, the super low weekly stochastics and daily MFI OS nature of the market indicated very strongly that a major bottom was near, but no such edge exists right now, so from an opex turning point one must be patient and wait to see what the market has planned for us.

RECENT HISTORY –  Opex and FOMC

Given the opex / FOMC combo, it actually turns out that FOMC is stronger than opex – something we have not previously seen. The FOMC / Opex week combo is something it appears that we will see quite regularly going forward. It occurred in 2013, three times – ALL MAJOR TURNS and it is scheduled to occur FOUR times in 2014!

In 2013, June FOMC brought us a MAJOR top the day before the FOMC and then a major bottom on the Monday post opex – the only month last year with a double turn. Sept 2013 was a straightforward major top on the Thursday post FOMC, while Dec 2013 was a bizarre one minute spike down that does count for a turn and a MAJOR Bottom, but it would be more than impressive if people caught that low.

Here is a summary of ALL of the FOMC / opex combos since 2007:

  • Sep 2007:  Topped day after Fed (Wed) and fell for 6 days and 40 pts
  • Mar 2008:  Bear Stearns bottom (Mon) on the day before FOMC (125 pt rally)
  • Sep 08:   Paulson bottom (Thurs) two days after (fell 83 pts and then rallied 138!)
  • Dec 08:   Major top day after (Wed) and fell to the Monday after -62 pts
  • Mar 09:  :  Minor top Day after (Thurs) and bottom on opex day  – 40 pts
  • Dec 09:  Minor top on Fed Day (Wed)  and bottom on opex day -23pts
  • Mar 10:  Minor top day after Fed (Wed) and bottom on Monday after  – 17pts
  • Dec 10:  Minor Top on Fed Day (Tues) and bottom on Opex Thus  – 17 pts
  • Mar 11:  Day after (Wed) Major Bottom
  • Dec 2011:  Major topped Friday before and Major bottomed Monday post opex (fell 72 pts)
  • March 2012: A rare minor top post opex and well past FOMC that just pulled back 27pts in 4 days from the Monday after opex (though there was some manipulation this week due to a JPM leak)
  • June 2013:  Topped on the day before (Opex Tuesday) and fell hard till the Monday after opex (-94 pts)
  • Sept 2013 – MAJOR TOP day after – traded down 83 pts in 20 days.
  • Dec 2013 – MAJOR Bottom – a one minute spike down to new lows for the month post the decision announcement and then a super rally of 74 pts in 13 days.

Essentially, when Fed Day is during opex – EXCEPT for Mar 2008 (Bear Stearns and VERY OS), Dec 2011 (1 turns pre FOMC and one turn post opex)  and June 2013 (2 turns during opex with two hourly OB signals leading in to the top) – the turns have all been post Fed….  So 3 turns pre Fed and 11 turns post Fed

RECENT March Opex weeks

  • MAJOR BOTTOMS have occurred during March opex week in 2007, 2008, 2009 and 2011. With the exception of 2011, all had quite low weekly stochastics and with the exception of 2009, all of the daily stochastics were quite low. The 2007 and 2011 bottoms were driven by external Asia crises, while the 2008 low was the Bear Stearns rescue
  • Only initial turn post opex was in  2012 when we topped on the Monday after and pulled back 27 pts in 4 days.
  • There have been two recent March opex weeks that had double turns
  1. In 2013, we had an OB Thursday top and then a Tuesday after bottom thanks to the FOMC on the Wed post opex– pullback was 25pts
  2. In 2010, post FOMC we had an OB Wed opex top that pulled back just 18 pts to an oversold gap down on the Monday post opex that was the bottom and resumption of the relentless rally.
  •  Hourly signals have generally worked except for one flat MFI sell signal in 2012 and a Wed sell signal in 2013 (Thurs top)
  1. 2007: MAJOR Bottom – Wednesday of opex week
  2. 2008:  Major Bottom – Monday of Opex week
  3. 2009 Major Bottom – Friday of opex week – was very hourly OS
  4. 2010:  Major Bottom – Monday after – really a dip from the post FOMC OB Wednesday minor top –then the market really took off
  5. 2011: MAJOR Bottom – Wednesday of opex week
  6. 2012:  Minor top – Monday after opex and FOMC – just a 4 day 27pt pullback (though there was some manipulation this week due to a leak by JPM)
  7. 2013:  Minor top on Thursday of opex week and a 25pt pullback to the Tuesday after pre FOMC

CURRENT CONDITIONS

Post Monday’s trading, there is no edge to the current conditions. With Monday’s large gap up, there really is just NO SET PATTERN for opex week – we have now gapped up on the last three opex Mondays when there was an FOMC meeting occurring during opex week – all of the gaps were filled though it took until Sept 27th for the September gap to fill.  If the gap is not filled during the week, it can have very bullish implications.

Given the sell off since the employment report, we are not super OB, so we are not replicating Sept 2013; but we are also not replicating June 2013 as we have not been selling off for that long.

While Monday’s gap up does weaken the similarities to BOTH the Mar 2007 and 2011 external country crisis bottoms, it has not completely eliminated the similarities – though a strong two day move below last week’s lows will be needed to revive them.

Most likely a better edge will emerge later in the week, and I will provide further comments as the picture gets clearer.

cisions, Monthly NFP Employment Reports, Monthly OPEX (Options Expiration) and Market Holidays.

 

Employment Turning Point for March 2014           (as of cob on Wednesday, March 5th):

This is my first attempt to provide someone standardized information prior to each of the primary turning point events.

BOTTOM LINE

All three scenarios are still on the table thanks to the history of March employment.  Again those scenarios are:

  • External crisis – rally in to employment, top near the open and fall in to opex (Mar 07 and Mar 11)
  • Minor top – like we have done in Dec 2013 and Jan 2014 – among other months.  It should be noted that in January, we also bottomed on the Monday before  and topped at the close.
  • Rally continuation like we saw in March 2010

I do favour one of the first two scenarios as there was not enough of a daily pullback (though we did meet the point pullback criteria) to create some fear to allow us to re-set and rally again – Dec 2013 and Jan 2014 are good examples of what I mean.

I do NOT foresee a MAJOR long lasting month long top here as all of the more substantive tops have involved the FOMC (May 2013 and Aug 2013) and I doubt Yellen will create too many waves in her first meeting which is March 19 – 20 – right in the middle of opex like Dec 2013, Sep 2013 and June 2013!

While lengthy, I hope all of the above and below is useful,

-D

PRIMARY TENDENCIES

DO NOT  BE SHORT in to the EMPLOYMENT REPORT unless the technicals overwhelmingly favour a short (ie. July 2011 and July 2012)!

  • Definitely look for major turning point as they occur almost 50% of the time– generally favors a bottom over a top, but lately even bottoms have been fairly rare – just June 2012, Aug 2012, April 2013,  June 2013 and Feb 2014
  • Major Tops are RARE since the volatility of 2011– just May 2012 (more  FOMC related), July 2012 and August 2013 (again FOMC related)
    • Except for Jul 11 and Jul 12, all of these tops occurred on the Friday or Monday after
    • Major Bottoms can occur from the Tues before (Oct 2011) to the Tues after (August 2011 and June 2010). ).  Employment day has seen some great bottoms like March 2009 and February 2010.
  • If we have made a decent low early in the week, then there are quite a few instances of a rally continuation where we had bottomed earlier in the week and the rally was back on – best recent example is Feb 2014
  •  The more recent tendency – really from July 2012 is for a turn to occur on the day before employment or on employment day IF there is going to be a turn – the only time there was a turn post employment was Dec 2012 when we rallied and topped at the Fed meeting on the Wed after….  It should be noted that between July 2012 and Sept 2013 – there were also 4 rally continuations.

RECENT HISTORY

If there is going to be a turn and not a rally continuation for employment (falls almost never continue), the primary turn days have been the day before to the day after employment – of course, the most recent exception to that was February 2014as we bottomed on the Wednesday before (only the second Wednesday before major bottom since 2007)

Overall, we have had a strong variety of employment turns since January 2013

-Major Bottoms – Five  (April 13 (Friday), Jun 13 (Thursday before), July 2013 (day before and day before holiday), November 2013 (Sharp one day fall on Thursday before) and February 2014 – (very os on the Wed before)

-Minor Bottoms – None

-Rally Continuations:  Three   (Mar 2013, May 2013 and Sept 2013)

-Minor Tops  –  5   (4 on Employment Day – Jan 2013, Feb 2013, Oct 2013 and Jan 2014  and one on the Monday after – Dec 2013)

Major Tops – 1 (Aug 2013 – Employment day – also 2 days post FOMC as well)

The LAST tops before employment day were:

  1. May 2012 on the Tuesday before when we had an extended rally post the late April FOMC and topped on Tuesday, May 1st (we touched the upper bollo that day, but were not terribly OB)
  2. July 2012 – Topped on the day before – we were VERY OB, particularly the RUT which had spent the entirety of the Wed and Thursday before employment above the upper bollo band

RECENT March EMPLOYMENT Reports

  • Definitely a month to watch – though like February, the edge seems to be fading –  MAJOR BOTTOMS in 2008 and 2009
  • 2007 and 2011 are ones to note as there were minor Asia EM issues that had started a sell off post Feb opex – we bounced in to employment and then topped that day and fell in to opex
    • 2007 (2nd Friday): Minor Top on employment day and a pullback that led to the MAJOR bottom on the Wednesday after employment which was opex Wednesday  (Asia EM issues)
    • 2008:  MAJOR Bottom on the Monday after, but it was just a bounce before the Bear Stearns bottom on Opex Monday
    • 2009:  THE BOTTOM on EMPLOYMENT DAY
    • 2010: Rally continued relentlessly
    • 2011: MAJOR TOP at the open on the day and down in to the major low on opex Wednesday – 12 days later  (Asia EM issues and then Japan Tsunami)
    • 2012 (2nd Friday):  Bottomed on the Tuesday before after a short sharp sell off that began at the end of February and then rallied until a post opex top
    • 2013: (2nd Friday) Rally continuation from the previous week continued until the Thursday (opex Thursday) after and then there was a small pullback

CURRENT CONDITIONS

First, I need to highlight March 2010 – as it followed the Feb 2010 major bottom and we have rallied in a similar fashion – except much faster and stronger than then….. as we did not make a new high until March opex – still it should be noted that March 2010 was a rally continuation despite the fact that we were MFI OB with an RSI in the mid 60s. The only real difference that I see is that post Feb opex there was a short correction back to the 20 day MA that had enough negative price action to re-set the oscillators – this has not yet happened with the current move

Weekly conditions relative to previous employment weeks do not provide any helpful hints – we are in the top ten of weekly extremes – of the other nine,

  • Two were MAJOR TOPS (Aug 13 and Jun 07)
  • Three minor tops (Dec 13, Feb 13 and Aug 09)
  • Four rally continuations (Feb 12, Oct 10, Jan 11 and March 13)

BUT, it should be noted on a weekly basis the MID and RUT are substantially through their upper weekly bollo bands and this is generally not a good sign for them

On a daily basis as of Wednesday, we have not met my definition of super OB – which would require us to be through the upper daily bollo bands – but we are CLOSE. We are the 6th most OB on an RSI basis since 2007.  The other five:

  • Three MAJOR TOPS (Nov 10, Aug 13 and Jul 11)    – Note the first two were post FOMC
  • One minor top – May 07 – but not till the Wednesday after
  • One rally continuation – Sep 12 – that followed the massive ECB intervention and major topped the following Friday

On an MFI basis, the only one to note is the March 10 rally continuation – that is still the highest MFI reading (but RSI was just 61) of all of the days before employment.

Overall, as seems to be usual, the odds favour a top of some sort – probably on Friday – but there is the noted occurrence in Q1 more than any other quarter of rally continuations that one must be aware of.

ONE LAST NOTE – The RUT has had another V reversal melt up and we are now very close to the maximum rally of the other 9 occurrences since Aug 2012, BUT all of the other melt ups initially ended around opex and the end of the month – I will post the study a bit later… as it is possible that Tuesday’s rally was the equivalent of the 2nd surges we saw in the RUT in most of the other instances.

 

MARKET OBSERVATIONS   March 3rd, 2014:

As always, lots of things to consider,– lots of cross currents – some bullish and some are shorter term warnings. We will clearly be having a down open on Monday morning…. While the expected turn did not occur last Thursday, at least a minor turn was / is due and it would have been rare for late February not to have at least one.

Bottom Line – a 3 red candle correction would fit with the late February historical pattern that we have seen since 2010. There should then be a bounce in to employment – after that, a further correction in to a mid week March opex bottom (2007 and 2011) could occur or a further rally in to a March opex minor top (2010, 2012 and 2013) are the two historical patterns that are currently equally likely.

As always, this is JUST what history would suggest – we did not quite follow February’s historical pattern – though we were close.

-D

Here is my more detailed research:

  • The February rally exceeded even the most bullish of analogs by bottoming pre employment for the first time – when we were trading down in to the month since 1998 AND not having even a small post opex turn – as usual in the latest phase of this bull market, it is  quite something!  The closest analog is Feb 2010 – which implies that we are headed higher, but it took 2 months that year for us to make new highs – not 4 plus weeks like this year.
  • In 65% of the daily MFI oversold cases using MDY, we test the low or make new lows before rallying – as we never tested the low or made new lows prior to the new highs, the prior precedents are bullish, especially now that we are daily MFI OB – the last time we went from daily MFI OS to MFI OB without testing the low – was Nov / Dec 2012 – but we did have a brief ‘crisis pullback  (The three other examples – Aug 2012, Feb 2010 and Mar 09 – the latter two had extended rallies)
  • One interesting period to note for SPY is that it tends to get MFI OS and OB more often than MDY and SPY showed both conditions twice last August through October (MFI OS in August and October and OB in September and October)
  • Lastly, One crazy thing about 2010 and 2014 – both years we bottomed on Feb 5th and we got daily MFI OB on Feb 26th!
  • For some time I have been following stocktwits sentiment, it was very bullish at the highs in January, but was strangely subdued with bulls below 50% last week – it may not be helpful – but it is something I find curious.   Need to study this more before drawing any definitive conclusions http://stocktwits.com/symbol/SPY#sentiment
  • Per my Feb 10th note – which can be found here  Denali’s Turning Points  the normal February expectation would have been for a post employment bottom or an A-B-C correction in February. Obviously, this did not occur in…. but I also highlighted that when there are emerging markets issues, we generally bottom during a purge in the subsequent option expiry months – this still can not be ruled out given the potential of the Ukraine situation
  • There are two recent Februarys where we had external country crises that helped create a correction in to March opex – these were 2007 (Asia EM) and 2011 (Asia EM and Japan Tsunami) – both bottomed during March opex
  • BUT it is important to remember that BOTH times we bounced in to March employment – topped at the open and then continued down in to the opex lows
  • Of course, to make things difficult in 2007, the employment report was on the 2nd Friday (March 9th) and in 2011, it was on March 4th

March 2007:

  • Topped on the Thursday post Feb opex (22-Feb) at 1462– BIG down day was a GAP down on Tuesday, Feb 27th when the SPX lost 50pts!
  • First bounce then occurred from Monday, March 5th (1374) to the employment report on March 9th (1410)
  • The final low was on opex Wed at 1364 and then we were off till early June

March 2011

  • Peaked on Opex Friday at 1344 – fell sharply for 3 days till 1294 and then choppily bounced to employment Friday, March 4th  at 1332
  • Then fell till Opex Wed (16-Mar) at 1249
  • We were then off till an initial early April correction and then a more significant early May top.

While we did not turn or bounce significantly last Thursday like we had in almost all previous Februarys since 2007, it should be remembered that we have had short sharp corrective pullbacks in prior years:

  • 2010:  Was just 3 days and 25pts, but pulled back to the 20 day MA
  • 2011: First pullback was 50pts in 3 days to 40 day MA
  • 2012: Essentially 3 red candles where we moved from the upper bollo to just above the lower bollo – but as it was a low vol time, the move was just 38pts – and we bottomed on the Tuesday before March employment
  • 2013:  Again 3 red candles (with a vicious bounce on the Thursday) in 5 trading days that took us from the upper to lower bollo bands – but the correction was just 45pts

Lastly, employment overall

  • Never be short in to the employment report unless super OB is well proven advice
  • We have bottomed the Wednesday before employment in February and December
  • The Monday before in January
  • The Thursday before in November
  • Per above, the first real bounce in to employment in 2007 was from the Monday before and in 2011 it was from the Wednesday before.

The first 3 weeks of March have the potential to be very interesting, particularly with Yellen’s first Fed meeting on March 18th / 19th.

 

MARKET OBSERVATIONS   February 24th , 2014:

Sorry for the lack of commenting – there has not been a lot to say…. And my kids were on their sports vacation for the last two weeks!

Below is my research, but the Bottom Line is as follows:

A small turn is due – some time between Monday and Thursday – I say Thursday, as noted below it has been a day for turns or bounces every year since –  2007 EXCEPT 2008.  Additionally, it should be noted that Yellen is speaking again on Thursday – it is her delayed testimony from two weeks ago.

 -D

February is living up to my view as a somewhat difficult month to trade (at least for me). We have followed the Jan / Feb 2010 analog quite closely  with TWO EXCEPTIONS:

-We bottomed on the Wed before employment instead of employment day – In the 28 previous employment bottoms, we had only bottomed on the Wednesday before ONCE.  (Sep 2009 – we then topped post opex and fell in to an October employment low)

-We have rallied MUCH more in the first two plus weeks of the rally – while the % is about the same – that initial rally in to a small post opex top only re-traced just over 62% of the decline before blasting higher in March

So what else can the historical turning points tell us?

-The holiday at the start of opex was as expected – NOT a significant turning point – instead it was a small top….  this also generally indicates that the post opex turn will also probably only be minor

Overall, February opex has been one of the worst months for opex turns, but it is getting better.

  • Did have a MAJOR top in 2011 as we were very OB and in 2007 there was a delayed Thursday after opex top
  • Day after has had small turns in 2009, 2010 and 2012 and a close to Major one post opex / post holiday in 2013
  •  Just six hourly signals and only real success was the 2011 Sell signal that called for a top
  • A Day to watch is the Thursday after – it has been the day for significant bounces or turns in 2007, 2009. 2010, 2011, 2012 and 2013!!!
  • Here is how the Feb opex turns have played out since 2007
    • 2007 – MAJOR TOP on the Thursday after – post holiday
    • 2008 – Trendless chop
    • 2009 – Minor low on the Monday after (minor holiday) and a bounce for 3 days
    • 2010 – Minor top on the Monday after (no holiday) and a 3 day pullback
    • 2011 – MAJOR TOP on Opex Friday  pre holiday (we were very OB) – though decline just lasted 6 days before the first BIG bounce
    • 2012 – very Minor top on the Tuesday after post holiday , but just a short fall till the Thursday after
    • 2013 – Close to a MAJOR TOP on the Tuesday after post holiday – BIG Bounce on the Friday, but then fell till the following Tuesday

 Except for Jan / Feb 2010 (with the above noted exceptions), we have NOT followed the normal pattern for trading down in  to February – we have also probably blow away  what a down January is supposed to mean for the market (though I have yet to do that research)…. So one last thing to note is what has happened during our relentless market periods when it has come to opex since the Nov 2012 bottom:

  • Jan 2013: No turn
  • Feb 2013:  Post opex topped near the close on the Tuesday after post holiday – fell hard for two days, had a strong bounce and then fell hard for one more day – then rally resumed
  • March 2013 – no relentless rally
  • April 2013 – no relentless rally
  • May 2013 – topped on the Wednesday after and finally bottom post June opex
  • July 2013 – Topped on the Wednesday post opex, but fell for just 25 pts till the Friday
  • Aug 2013 – no relentless rally
  • Sept 2013 – Topped on the day after opex / post FOMC
  • Oct 2013 – Thanks to the late employment report – just a small almost inconsequential turn
  • Nov 2013 – Topped on the Monday after and fell till 25 pts to the Wed after

 Lastly, we now have an hourly sell signal – hourly sell signals on the Monday post opex have only a fair track record (it is best to take them late or a day or two later) and they have been terrible recently as they have been losers in Dec 2013 (no top), Oct 2013 (Tues after small top), July 2013 (Wed after minor top), May 2013 (Wed after MAJOR top). There has not been an hourly sell signal  on the Monday post Feb opex since 2007 – but that is partly due to the only occasional nature of a non Monday holiday post opex.

Let me know if you would like anymore of the details.

-D

 

MARKET OBSERVATIONS – February 10th , 2014:

 There are a number things that I am considering at the close of play on Friday:

1. FOMC Chair Change – did Monday’s big decline and then Wednesday’s slightly lower low – just surprisingly set us up for the typical Fed Chair initial rally? – we have certainly now had one since Wednesday.

  • We will know more when Yellen speaks on Tuesday and Thursday.
  • There is not enough data to make an educated guess, but it is a thought that was at the back of my mind that I thought I would put out there

2. The month of February – Since 1998, the market has been weak entering the month of February 7 times and we have never made the low during those months before employment – it just has not happened – so Wednesdays low and BIG bounce is a surprise… but has me thinking along the lines of December 2013 (Monday after high) or possibly a Wed after high somewhere near the 20 day MA at 1804. Also, the Jan 2010 analog that I have mentioned numerous times had two sizeable up days (+ 3% from the lows) before heading in to the employment day bottom.

  • TWICE: We bottomed post employment (2006) and on employment day and rallied (2010)
  • Twice: We fell relentlessly all month (2001 and 2003)
  • Twice we had A-B-C corrections
    • 2000: We bounced from Jan 31st to the Wed post employment and then fell to Feb 28th  (the lows of the year) before the strong March rally
    • 2002: We peaked on the 1st – employment day- and fell till the 6th bounced till the 14th and fell again to a low on Wed post opex and holiday and then rallied in to March
  • Once, we bounced during the first week – peaked on the Monday post employment and fell relentlessly (2009)

3. If part of the weakness we are experiencing is really due to the Emerging Markets, then one should know that most Emerging Markets issues end in a purge during one of the subsequent months opex weeks:

  • Examples (I have many more – though have not quite finished the research completely and as my kids’ are on school holiday, it may not get done right away…. So you will have to trust me on this one…):
    • Feb 2011 to Mar 2011 – Japan Tsunami and Asia issues – bottomed on March opex Wed.
    • Feb 07 China Issues:  Bottomed in March opex

4.  Looking ahead…. And one of the reasons I was hoping for a Jan 2010 type of employment trade is that the likelihood of a holiday turn for the President’s Day is lower than normal AND Feb opex rarely produces MAJOR Turns. See below

5. Lastly, I mentioned last week the daily MFI set up…. We bottomed and bounced a bit earlier than one would expect in both the SPY and MDY….  (and MDY is still MFI OS due to the HUGE volume on a relative basis on 3-Feb)

  •  One of the interesting things about the daily MFI OS set-up is that only 35% of the time it marks a significant low that is not re-tested (best recent example Oct 2013).
  • The other 65% of the time, the low is re-tested about 18 days later and there is a lower low…  The last recent example is June 2013. The first daily MFI OS signal was on Thursday 6-June and we bounced immediately in a 3 wave move to Opex Tuesday and then we rolled over and made a lower low 18 days later and 38 pts lower.

For now, I am wait in see mode partly as I am in the mountains as my kids are on their ‘sports vacation’ here in Switzerland (so my commenting might be less frequent this week), but more importantly, the really strong bottom set up that I prefer was not there last week.   I will admit I was faked on more than a few lows in 2013 – so Wednesday could have been THE LOW for quite some time….  But it was not the type of strong set up that we saw in April 2013, June 2013, August 2013 or October 2013 – those were all Denali type bottoms!   Those lows (in my way of thinking) were all nice ABC corrective patterns (though April was only that way for the MID and the RUT)

Have a good week,

-D

February Opex and President’s Day holiday

Looking ahead to Feb Opex and the President’s Day holiday –

In the end, Jan opex and the MLK holiday did not disappoint with the slightly delayed Wednesday after top, as opposed to the more normal Tuesday after top. Will we get more of the same in February or something different?

First thing to note is the holiday is at the start of opex, not the end. In general, this significantly reduces the chance for a holiday turn and it really becomes all about opex. The market seems to be equally likely to accelerate in the direction of the trend as it is to have a small change in trend post the holiday – overall, this is one of the weakest holiday setups and is NOT worth taking.

Overall, February opex has been one of the worst months for opex turns, but it is getting better.

  • Did have a MAJOR top in 2011 as we were very OB and in 2007 there was a delayed Thursday after opex top
  • Day after has had small turns in 2009, 2010 and 2012 and a close to Major one post opex / post holiday in 2013
  •  Just six hourly signals and only real success was the 2011 Sell signal that called for a top
  • A Day to watch is the Thursday after – it has been the day for bounces or turns in 2007, 2009. 2010, 2011, 2012 and 2013!!!
  • Friday has been the high of the week for three of the last four years 2010 – 2012 (but it was Wed in 2013)
    • 2007 – MAJOR TOP on the Thursday after – post holiday
    • 2008 – Trendless chop
    • 2009 – Minor low on the Monday after and a bounce for 3 days
    • 2010 – Minor top on the Monday after and a 3 day pullback
    • 2011 – MAJOR TOP on Opex Friday – though decline just lasted 6 days before the first BIG bounce
    • 2012 – very Minor top on the Tuesday after, but just a short fall till the Thursday after
    • 2013 – Close to a MAJOR TOP on the Tuesday after – BIG Bounce on the Friday, but then fell till the following Tuesday

 

Market Thoughts – Feb 6th, 2014:

Further thoughts on employment after Wednesday’s trading

We can clearly bottom and bounce at any time, but given where we are trading today relative to Q4’s trading range – the nearest example to an employment bottom that we have is June 2012 – where we were trading in the week before employment report at levels last seen in Jan 2012. So the one to pay attention to below in the second set up. I would not be short now or in to the report.  As far as getting long, I personally will wait until the day after a BIG DOWN Day with a significant red candle – I possibly might buy a little near the close of the big down day given our propensity to gap up post big down days. If I miss a move higher, so be it – there is a lot of risk here and while we have paused  – we also paused in Aug 2011 and a Wed before employment is rare…. Unless it is setting us up like December 2013.

  •  We have fallen in to employment 30 times since Jan 2007 (out of 85 reports) 1. Major Bottoms:  25 2. Minor Bottoms 3 3. Fall continued – TWICE  –  Oct 08 and Jan 09.
  • Some of the bottoms were totally unpredictable (July 2013 and Nov 2013) or extreme (Aug 2011) or just oversold bounces in extreme sell offs Jan 08 and Nov 08.

There really are two different set-ups:

  1. Corrective pullback from a lower low the previous month  After a few days correction and AFTER a BIG RED DAY – preferably Thursday – it is worth taking a shot at buying fresh lows the next day, particularly when they retrace part of the last BIG up candle or hit the lower bollo (Oct 09 and June 2013 are good examples).
  2. FRESH multi month lows  Has corrected for a while – preferably since at least the last opex  This low will come after at least one, preferably TWO big red candles and then lower lows below the lower bollo band – may fill important gaps from months before – selling might be slightly irrational     (Mar 09, Feb 10 and June 2012 are good examples). Thursday and Friday are the best days for the lows unless the selling just starts on Friday – then post employment (June 2010)

In 2013, there were FOUR employment bottoms (April, June, July and November) – 3 occurred on the Thursday and April was a gap down on the Friday.  Only June’s was somewhat normal as we had had two days of selling and then a lower low on the Thursday before rallying.

An employment related bounce is due, it can come at any time – though the strongest set up would come from capitulation selling – maybe that was Monday, but it would be early if Monday was the final day for it. Wednesday before employment lows are also rare. We did make one in December (but then reversed on the Monday after and made lower lows), but it is rare and does not fit well with Monday’s down move – are we just stair-stepping down each week?

For now, my powder is dry, as I am expecting something analogous to the Feb 2010 major bottom….   February can be a strange month that does sometimes just see January’s trend continue with just minor twists and turns –  Feb 2008, Feb 2009, Feb 2012 and Feb 2013 were all like that. While Feb 2007 topped post Feb opex, Feb 2010 bottomed on employment Friday and Feb 2011 topped on Opex Friday.

Last key point – we are MFI OS.  Here is what I wrote about that earlier in the week. THIS is an IMPORTANT ONE when it occurs during Opex it is THE NUMBER ONE Turning Point set up.  It also works during employment – but may be indicative of a bounce and a bottom later too.  We got this same signal in Jan 2010 on the Thursday the week before employment.  There was a two day bounce before we made the final lows on employment day.

There have been just 5 instances during employment week since 2007:

  • Aug 07  (Wed before signal start) bottomed 5 days after and about 3% lower – but it was just a two day bounce as we then fell hard in to August Opex.
  • Sep 08 (Employment day signal start) – really just a bounce from employment day to the Monday after off over 5% in those wild days.
  • Mar 09 (Tues before signal) – The MEGA bottom occurred on the Friday.
  • Aug 11 (Friday before) – Had been selling off for a while – bottomed on the Tuesday after.
  • Sep 13 (Tuesday before) – bottomed that day and we were off, but this was the second signal – we had seen one post August opex as well.
  • The median number of days from signal to the low is 4 days.
  • The Median price change is 4 MDY points.
  • The first two instances were simply bounces and then lower lows during Opex.
  • The last three instances were more significant lows.

VERY interesting!

-D

 

FEBRUARY Employment – Back to having an edge? – Feb 4th, 2014:

Monday’s sharp drop has significantly increased the probability that there will be an employment turn.  The February employment edge has not been NOT evident in the last 3 years…. In 2011, 2012 and 2013,  we essentially saw bullish continuations in to Feb opex….

Prior to that, there was definitely an edge in 2008, 2009 and 2010 as we had MAJOR tops on the first two and a MAJOR employment bottom on the third one.

  • 2007:  Minor top the Wed after
  • 2008 Major top on employment day
  • 2009: MAJOR Top on the Monday Afer
  • 2010:  Major BOTTOM on employment day
  • 2011:  Rally continuation in to an opex top
  • 2012: Rally continuation really for all of Q1
  • 2013:  Minor top on employment day with a small pullback in to the Monday

Another strong sell off  later in the week will make it highly likely that we see an employment turn – either a strong bounce (like in June 2013 when we bottomed on the Thursday before employment after the post May opex top) or a more permanent low like the employment day bottom in Feb 2010 – for now, it is still too early to tell, particularly as last week’s trading range eliminated any FOMC tell.

I have looked at three things in my research – recent employment bottoms,  BIG DOWN days at the start of employment week and MFI OS during the week before employment.

Bottom Line:  While it is possible that we play the January game of a big down day and then up we go, previous history points to a low between Thursday and the Tuesday post employment – whether that is THE LOW for Feb or just a bottom and a bounce is impossible to tell at this juncture.

RECENT EMPLOYMENT BOTTOMS – when trading down in to employment week or having a significant down day during employment week:

  • January 2014:  Bottomed on the MONDAY before, topped on employment day and fell to lower lows on day after employment – Opex Monday.
  • December 2013: Bottomed on the Wednesday before topped on the Monday after
  • November 2013: Bottomed in the pre market / Thursday before at the close
  • June 2013:  Bottomed near the open on the Thursday before and bounced in 3 waves in to opex Tuesday *** one to remember
  • April 2013:  Bottomed on Friday’s open and rallied till the following Friday
  • August 2012:  Thursday before and then a big rally in to September
  • March 2012:  Sharp three day fall in to the Tuesday before then reversed and we were off again
  • October 2011:  BIG DOWN Monday and then bottomed on the Tuesday before
  • August 2011:  BIG DOWNs on Tuesday and Thursday before and Monday after – final low on FOMC day, the Tuesday after
  • July 2010:  Topped the day after June opex and bottomed the Thursday before
  • May 2010:  Bottomed the Thursday before – FLASH CRASH
  • Feb 2010:  (My favoured analog so far) Topped on the Tuesday post holiday / post opex in January and fell till the middle of the afternoon on employment Friday.
  • 2009 had a lot of bottoms during employment week with March 2009 and October 2009 having Friday bottoms.

Conclusion: Given the significant move down and the post opex top, the edge is for a bottom between Thursday and the Tuesday after with Thursday and Friday the likely days.

BIG DOWN DAYS to start employment week – this is not something I keep track of – so I have done the work more by memory, than specific record – apologies, if I have missed something. Most of it is captured above – just wanted to highlight them.

  • March 2012:  While MID and RUT had been weak since Feb opex, the SPX had a quick three day move from the upper to lower bollo band – bottomed near the close on the Tuesday before employment
  • October 2011:  Had been correcting since post Sept opex and there were a lot of positive divergences – market got smashed on Friday and Monday and bottomed on the Tuesday before employment and we were off
  • August 2011:  BIG down days on Tuesday and Thursday….Doji on the Friday and then crushed on the Monday
  • July 2010:  Big down day was Tuesday before and bottomed on the Thursday before – had topped post June opex
  • May 2010: Flash crash, but we were also down big on the Tuesday… bottom was on the Thursday
  • March 2009: Breakaway down gap on the Monday before – THE BOTTOM on the Friday

Conclusion:  While March 2012 and October 2011 give hope for an early end to this down move – the general evidence would point to a bottom between Thursday and the Tuesday after.

MDY  MFI OS Before Employment

  •  THIS is an IMPORTANT ONE when it occurs during Opex it is THE NUMBER ONE Turning Point set up
  • It also works during employment – but may be indicative of a bounce and a bottom later too. We got this same signal in Jan 2010 on the Thursday the week before employment. There was a two day bounce before we made the final lows on employment day
  • There have been just 5 instances during employment week since 2007
  1. Aug 07  (Wed before signal start) bottomed 5 days after and about 3% lower – but it was just a two day bounce as we then fell hard in to August opex
  2. Sep 08 (Employment day signal start) – really just a bounce from employment day to the Monday after of over 5% in those wild days
  3. Mar 09 (Tues before signal) – The MEGA bottom occurred on the Friday
  4. Aug 11 (Friday before) – Had been selling off for a while – bottomed on the Tuesday after
  5. Sep 13 (Tuesday before) – bottomed that day and we were off, but this was the second signal – we had seen one post August opex as well
  • The median number of days from signal to the low is 4 days
  • The Median price change is 4 MDY points
  • The first two instances were simply bounces and then lower lows during opex
  • The last three instances were more significant lows

Conclusion:  Again a low is due…. Would prefer confirmation from the other ETFs, as that gives the signal greater strength.  Really just all down to when it occurs and whether it is THE LOW or just the low and a bounce and then new lows during / post opex like in June 2013.

Will provide more info later in the week when we discover a few more clues as to what the market has in store for us.

–D

FOMC Chair Change Study – Feb 4th, 2014:

One of the most notable events this year has just taken place with the retirement of Ben Bernanke and the arrival of Janet Yellen as the new Chair of the FED. Janet Yellen is only the 7th Fed Chair since 1951.

In remembering Greenspan’s difficult start with the Crash of ’87, and seeing so many commentators mentioning the bearish nature of the Fed chair change, I decided to investigate whether there was any pattern to the start of a Fed Chair’s term and whether there was any truth in some pundits’ comments that the market always tests an incoming Fed Chair.

The bottom line is that there definitely is some truth to the view that the market always provides a test to the incoming Chair of the Fed.

The data show two key points:

1)      There is an initial rally when the Fed Chair takes over at the start of their term

2)      There is then an initial correction. If the initial correction is less than 13%, then there will be a continued substantial rally and then an even BIGGER correction.

Looking at the initial rally.

  • The median length is 56 days with a 6.9% price change
  • The longest was 189 days under William Miller in 1978 as the market came out of its 27% 14 month correction that ended 5 days before he started.
  • The shortest was 14 days and 2% as the market topped out on the Tuesday post opex in August 1987 just two weeks after Alan Greenspan started.

With respect to the initial corrections, they were remarkably similar in length

  • With the median being 56 days. The longest being 64 days and the shortest being the Bernanke 33 day correction.
  • As the size of the initial corrections is so dramatically different, let me list them:
    • William McChesney Martin
      • -8.8%  in 56 days
  • Arthur Burns
    • -21.9% in 62 days
  • G. William Miller
    • -15.0% in 64 days
  • Paul Volcker
    • -12.4% in 33 days
  • Alan Greenspan
    • -41.2% in 56 days
  • Ben Bernanke
    • -9.0% in 33 days

With respect to the even bigger eventual corrections, these were experienced under Martin, Volker and Bernanke, but before those corrections occurred, there were substantial rallies.

  • Martin
    • Rally:   19.4% over 644 days
    • Correction:   -13.9% in 253 days
    • Volker
      • Rally:  8.1% in 191 days
      • Correction: -20.5% in 43 days
      • Bernanke
        • Rally: 30.4% in 617 days
        • Correction:   -54.7%  in 512 days

Lastly, the initial Volker (-1 day), Greenspan (+7 days) and Bernanke (+1 day) corrections started fairly close to FOMC meetings.

Bottom line, unless the market is truly different this time, then history would suggest that the market will greet the start of Yellen’s term with an initial rally and then there should be a substantial correction of around 9% at a minimum, some time starting in late Q1 or in Q2 – most likely around an FOMC meeting.

March 18th – 19h with a press conference  (Opex)

April 29th – 30th    before employment

June 17th-18th with a press conference      (Opex)

If anyone wants more details on the data, I will happily provide.

LOOKING MORE CLOSELY at the first month or so of a new Fed Chair.

Martin (1951), Greenspan (1987) and Bernanke (2006) all took over at a time of generally rising equity markets that were experiencing multi-year (Martin and Bernanke) or all time highs (Greenspan), while the other three chairs took over during periods where the equity market was correcting (Burns and Miller) or had still not reached previous peaks (Volcker).

Given the equity markets reasonably flat performance in 2004 and 2005 prior to Bernanke’s term, the overall market environment for the start of Yellen’s term is probably closer to the periods experienced by Greenspan and Martin, as the markets had enjoyed extended gains for a number of years prior to the start of their terms.

Still, no FOMC Chair since 1951 has started a term where the equity markets had hit an all time peak 2 ½ weeks before only to decline just under 4% prior to the start of their term.  The closest comparative is the start of Martin’s term in 1951, as there had been a pullback from mid February 1951 to mid March of 6% – but the markets were back on the rise at the start of his term and were at new multi year highs within a month of his starting.

Bottom Line:  When I first started this study last fall, I got the sense that there would be a rally and then a correction when Yellen’s term started, as that was the overwhelming occurrence for the other Fed chairs.  The initial correction of a Fed Chair’s term appears to have started earlier – shortly after Yellen was confirmed – not after a honeymoon of two to three months.  Now it is always possible, that we have bottomed the day Yellen’s term started, but what seems likely given the QE tapering is that we are in the middle of either the initial correction or possibly the BIG correction – though I think that is less likely.  As a reminder,

  • Bernanke’s correction lasted 33 days and was -9%
  • Volcker’s correction was 33 days and -12.4 %
  • Martin’s correction was 8.8% in 56 days.
  • The other  Fed chair’s only saw the single steep correction (ie. Greenspan had the Crash of ’87)

Yellen’s first public opportunity to speak and possibly provide market altering words are to Congress on Feb 11th and 13th. Her first FOMC meeting and press conference will be March 18th-19th.

It is definitely  getting interesting.

-D

Here are the details on the start of each Chair’s term.

Bernanke (1-Feb-96):  Rally before correction

  • Background on 2005 – 2005 was a year of relatively flat performance with the market making a high in March, a low in April and then a general return to the highs in December.  The market made a new high on Wed, Jan 11th and then had a sharp pullback of just over 4% to the Monday post Jan opex and then the initial Bernanke rally was on. The rally was not all one way traffic as there was a two week correction post Feb opex and a three week correction from post March opex until the beginning of April opex.
  • Still, the bulls never really faltered until the sharp pullback began the day after the May 2006 FOMC meeting.

Greenspan (11-Aug-87):  Almost an immediate correction

  • Background on 1987 – Greenspan took over as Fed chair in an environment of accelerating equity markets (27+ % in 1985, 23% in 1986 and over 36% ytd in 1987). The party lasted for two more weeks through his first FOMC meeting until it peaked for the year on the Tuesday post August  opex and began its gradual decline in to the infamous month of October 1987.

Volcker (6-Aug-79): Steady two month move higher, then a sharp one month correction.

  • After the sharp 15% fall from Sept 1978 to Nov 1978, the market made a gradual comeback in 1979 gaining 9% from the Nov 1978 lows prior to the start of Volcker’s term. The market was up 2% in the first 3 days of Volcker’s term and then moved slowly but steadily higher in to the early October peak before the sharp one month 12.4% correction  began.

Miller (6-Mar-78):  Bottom of Bear market and a huge 6 month rally

  • Background on 1978: 5 days before Miller started, the market had bottomed and ended its 27% fourteen month correction.  The market gained just 2% in Miller’s first month, but then exploded higher in April 1978 gaining 10.6%.

Burns (1-Feb-70): Sharp 6 week rally and then a two month tumble

  • Background on 1970: When Burns took over the market had already corrected 25% from its Dec 1968 peak. The final bottom of that bear market did not come until almost 4 months after Burns arrival. Still from mid February until the end of March, the market enjoyed a sizzling 8.7% rally only to give it all up and a lot more in the subsequent 2 month correction.

Martin (2-Apr-51) :  Sharp one month rally, then sharp 8 week correction

  • After the significant correction 17% from June of 1948 to June 1949, the markets enjoyed a stellar start to the 1950s with a 17% plus return in 1950 and an almost 6% gain prior to Martin taking over.  It continued this run and even accelerated it, as the market rallied 6.9% during Martin’s first month.   While it had already peaked two weeks earlier, the market fell 1.8% the day after Martin’s first meeting as Chair

 

MARKET OBSERVATIONS   Jan 27h, 2014:

Given the steep fall in to – at least yesterday – two days before FOMC, there are not too many similar instances since 2007… particularly when the FOMC meeting is not adjacent to opex or employment. There is definitely a bottom near – it may already be in… though previously the Tuesday before FOMC was the more regularly occurring day for a bottom… we were VERY hourly OS yesterday.

Still, the bottom line from my research, is that we are most likely looking at an FOMC inspired bounce and then a further decline in to February as 2/3rds of MAJOR opex tops have declined in to at least the following month.

For now, the markets have changed character, at least slightly, and the data since 2007 suggests that a more defensive posture is sensible until next month. It is possible that we have just had a 5 day 77pt decline and we are off again as the markets do like to surprise to the upside, but the data suggests otherwise, as does the May and Sept 2013 opex / post opex tops.

Ever interesting,

-D

Here is the more detailed research.

Overall, there has only been one January FOMC instance like this year where we have fallen in to at least the Monday before FOMC – that is a month that I have mentioned before – January 2010 – so far, we continue to track that month reasonably closely.

Again, the details for that month:

  • New highs post Jan employment, but then a trading range for opex
  • Rallied post opex / post MLK in to a post opex / post holiday top
  • Declined hard to below lower bollo band on the Friday of that week.
  • Stabilized on the Monday and Tuesday, but opened lower and made new lows on Fed day before closing up….but we then fell another 28 pts from Thursday’s open to Friday’s close, before having a two day 33 pt bounce
  • Then the selling continued and did not stop until 2pm on employment Friday…. But that was THE LOW and we did not look back until the end of April.

As far as falling sharply like we have post opex and post holiday, it has not happened that often since 2007.  First looking at falling in to FOMC from the week before, except for June 2008, there is at least a minor bottom nearby, if it did not already occur this past Monday, then a bottom and a bounce of at least 25 pts if not a LOT more is coming soon.

  • Mar 2013 (post opex):  Just a brief fall from Opex Thursday to day before FOMC
  • Oct 2012:  (post opex) – Peaked on opex Thursday and then fell in to the  Friday after FOMC
  • April 2012 (post opex) – Had fallen post opex until the Monday before and then had a good rally through FOMC
  • Nov 2011 (pre employment) – Had peaked on the Thursday before and fell till the day before
  • Aug 2011 (post employment) – I am sure we ALL remember that post employment mini crash and bottom on FOMC day
  • Mar 2011 (Opex) – Japan Tsunami crisis – bottomed day after and then we were off
  • Jan 2010 (per above)
  • Oct 08 – Had peaked post opex and bottomed the Monday before the FOMC then rallied sharply in to the election in early November
  • Sep 08 – The famous Paulson bottom occurred two days after
  • Aug 08 – Bottomed the day before and had a good week long bounce
  • June 08 (post opex) – Had peaked post May opex and the fall was relentless with nothing really stopping it
  • Mar 08 (Opex) – The famous BEAR Stearns bottomed occurred on the Monday before
  • Aug 07 – Had topped during July opex… then fell hard until the Monday before FOMC and then rallied hard till the day after before rolling over even harder in to August opex

Overall, I still favour something along the lines of the 2010 analog, as the post opex / post holiday major top combination is a powerful one and as we have already pulled back over 50pts, a move lower in to February is likely.  There have been 21 major opex tops since 2007 and only 7 of the 21 have bottomed during the same month.

Recent examples of MAJOR holiday or opex tops:

  1. Sept 2013 opex / FOMC top:  bottomed 2nd week of October
  2. May 2013 post opex top (and a secondary post holiday top): Bottomed post June opex
  3. Dec 2012 opex top:  just declined till the last day of the month
  4. Oct 2012 opex top:  declined till November opex
  5. Jul 2012 opex top – just a rapid 5 day 52 pt decline till the Tuesday post opex
  6. June 2012: Post opex top – declined 54 pts in 6 days
  7. Sept 2011:  Major top on the Tuesday after – declined in to major low in early October
  8. Feb 2011 (Opex and a holiday) – declined in to March opex
  9. June 2010 (post opex) – topped post opex and pre FOMC and fell until the 1st of July
  10. Jan 2010:  Declined till Feb empoloyment
  11. Oct 09:  Topped on the Monday after and fell until the first trading day of November
  12. Sep 09:  Topped post FOMC and post Opex and fell until October employment
  13. Dec 08:  Opex Wednesday top – declined for 5 days and 69 pts
  14. Oct 08:  Tuesday of opex top – declined for 13 days and 219pts
  15. Sept 08:  The massive Paulson short squeeze – first major low was in October.
  16. Aug 08:  Topped on opex Monday and fell until September opex
  17. May 08:  Topped post opex and fell till July opex
  18. Nov 07: Topped on Opex Wednesday and fell for 12 days and 87 pts till post Thanksgiving
  19. Jul 07:  Topped on Opex Thursday and fell in to August opex
  20. June 07: Topped on opex day and fell 56pts in 12 days
  21. Feb 2007 – post holiday and post opex – fell in to March opex

 

2013 FOMC Turning Point Review:

Until it changes, the FOMC still seems to be THE primary driver of the markets.  With the exception of the March opex / Cyprus pullback, we rallied in to every FOMC meeting in 2013.

These rallies in to the FOMC produced:

  • 3 MAJOR Tops (June, July and September). We also had the MAJOR TOP post May opex when Bernanke spoke and the FOMC minutes were released, but for the purposes of turning points, I do not count that one.
  • 1 Minor top (October) – just a 2 day 23 pt pullback
  • 1 Minor Bottom (March when we fell in to the day before the FOMC announcement and then rallied 36 pts over a two week period
  • 2 Major Bottoms (May and December)– that I will count as unusual, especially the December one where we traded down on the FOMC day (albeit very briefly in December) made new lows and then rallied. May’s was slightly more understandable as we sold off all day and the RUT, in particular, got quite oversold and then we bounced for employment, which is fairly typical.
  •  1 very minor pullback (Jan) of 1 day and 13 pts as the employment report was the next day. I do not count this as a turn, as it was just too small.

WHEN did the 7 (out of 8) turns occur and were there other factors?

  •  Day Before FOMC – Twice   – March bottom (post opex) and June top (Tuesday of Opex week)
  • Fed Day –Three times.   May’s all day downtrade, October’s minor top and December’s unusual major bottom on Opex Wednesday
  • Day After FOMC – Once – the MAJOR TOP on Opex Thursday after the surprise no taper decision
  • 2 days After – August MAJOR TOP – which occurred on employment Friday

The important thing to note is that all of the MAJOR turns for the FOMC were closely linked to the employment report (May and August) or Opex week (June, September and December)

For 2014, 6 of the 8 FOMC meetings (not January or October) will occur in tandem with opex week or the employment report, so there should be some interesting market moves during those 6 weeks.

The Primary Tendencies for the FOMC Turning Point:

  • Since 2007, the Market has made a remarkable number of turns around FOMC – almost 50% of the FOMC meetings – generally combined with Opex or Employment have resulted in Major Tops or Major Bottoms
  • Major tops can occur at any time around the FOMC, but it appears that if the market tops out prior to FED day (as in June 2013 – the day before or a few days after (eg Sept 2013 – Thursday after combined with opex, Sept 2012 – Friday after and April 2012 –Tuesday and April 2011 – Monday after) then we are looking at potentially MAJOR Tops
  • Major bottoms occur if we have fallen significantly from the prior week – bottoms can occur on Fed day or a day or two before (2009 was Monday before), the Tuesday of FOMC week seems to be a very popular bottom day lately
  • Minor tops seem to occur on the day or the day after
  • There have been a few Major tops when the run post FOMC has continued for 2 or 3 days after (eg April FOMC in 2011 and 2012)
  • Press events have all seen rallies in to the event – IF we have not fallen before, then selling the Monday after has been very profitable (Nov 2010, Apr 2011) or Tuesday, April 2012   – All June press events have had sell offs after

 

2013 Employment Turning Point Review:

What occurred with the employment turns in 2013?

MAJOR BOTTOMS:  FOUR  (April, June, July and November).  April and June were good solids setups with April being a fade the open at Friday’s open and June being an hourly oversold set up with a low on the Thursday before the report.  July was a  Wednesday pre employment and pre holiday low that was slightly unexpected as there had been a very limited 3 day pullback since the post June opex low. November was a report delayed by a week and was totally unpredictable as we had a high and a low on the Thursday before the report, but we were quite oversold by the close on the Thursday.

MAJOR TOP:   ONE – Two days after the FOMC in August and at the close on the employment day – a decent set up as the market had run since June opex and was quite OB – but again no reason to be short pre number.

Minor Tops:  FOUR  Three occurred on employment day (Jan, Feb and October) but ALL of the pullbacks were very small – smaller than usual – as they were less than 20 pts – while the one on the Monday after in December was 39 pts and lasted 3 days.

Rally continuations:  THREE  (March, May and October) – While all three of these months had at least a one day pullback or false down day…. They had all bottomed at least ten days before the report and the market was in a strong uptrend.

BOTTOM LINE:  In 2013, the employment reports were very much in line with the historical turning point tendencies and I see no reason to alter the advice that I have been providing for the last few years with respect to the monthly reports.

The Primary Tendencies for the Employment Report Turning Point:

DO NOT  BE SHORT in to the EMPLOYMENT REPORT unless the technicals overwhelmingly favour a short (ie. July 2011 and July 2012)!

  •  Definitely look for major turning point as they occur almost 50% of the time– generally favors a bottom over a top, but lately even bottoms have been fairly rare – just June 2012, Aug 2012, April 2013, June 2013 and November 2013.
  • Major Tops are RARE since the volatility of 2011– just May 2012 (more  FOMC related), July 2012 and August 2013
    • Except for Jul 11 and Jul 12, all of these tops occurred on the Friday or Monday after
  •  Major Bottoms can occur from the Tues before (Oct 2011) to the Tues after (Aug 2011 and June 2010).  Employment day has seen some great bottoms like March 2009 and February 2010.
  • If we have made a decent low early in the week, then there are quite a few instances of a rally continuation where we had bottomed earlier in the week and the rally was back on.

 

2013 Opex Turning Point Review:

Once again, opex proved to be a consistent turning point in 2013, WITH THE EXCEPTION that it was bookended in January and December with two months that were unexpected from a historical perspective.

January 2013 – despite a plethora of hourly sell signals and the usually strong combination of opex and a post opex holiday (see February) failed to turn….

As for December, yes, there was a mid week Wednesday low on the 1 minute spike down post FOMC….   But this was a totally out of character bottom…. That may count as  a major bottom….  But there were NO signals that could have helped capture it… or anticipate such a move….

Additionally for the first year since 2009, the hourly OB and OS signals during opex were of limited help this year…. Instead it was all about identifying whether the turn was on Opex Thursday or was going to be post Opex.

The other ten months of 2013 were remarkably consistent with turns either on Opex Thursday (March, April and September) or post Opex (February, May, June, July, August, October and November)   Thanks to the delayed employment report only October’s 20pt 1 day decline can be seen as below the expected minimum turn.

Including December, there were FOUR bottoms- the ones in April (on the Thursday) and in June (Monday post Opex) were well flagged with signals and led to explosive rallies. The one in August on the Wednesday after opex was an acceptable 31 pt bounce before we made our final low at the end of the month.

There were TWO MAJOR Tops –the one in May was on the Wed post opex (thanks to Bernanke’s speech to Congress) and was way overdue and led to the one month correction in to the post June opex low…. Interestingly, the other MAJOR top was also Fed induced and came after an extended rally….  It occurred on opex Thursday in September.  (note for 2014: I do think the FOMC will continue to be key to turns this year)

As for the 5 minor tops….  Other than the March opex Thursday to post opex Tuesday pullback, the rest were all post opex with just the February post opex / post holiday top at 45 points being much more than the usual 25 to 30 pt turn. All the pullbacks lasted 2 to 4 days (except for October’s 1 day wonder)

Lastly, consistent with the consistently bullish character of 2013…. There were only two months all year that we did not rally in to at least the first part of opex week…. They were April (top on the Thursday before) and August where we had topped on Employment Friday – ten days before the start of opex.

For 2014, it will be interesting to see whether we continue to rally in to almost every opex week and whether the turns continue to be consistently either on Opex Thursday or post opex or whether we revert to the slightly more unpredictable, but quite interesting turns that can occur from opex Tuesday through to post opex.

The Primary Tendencies for the Opex Turning Point are as follows:

The exact timing and nature of opex turns is hard to predict in advance – though in 2013 – the ten months between February and November all had their turns on Opex Thursday or post opex.  Previous to 2013, hourly signals were very helpful in identifying turns.In 2013, they were not as profitable, but they did provide a decent indication of what type of turn (top or bottom) might occur.

The following are my primary opex guidelines:

  • The window for opex turns is from Opex Tuesday to the Wednesday after opex
  • Super high weekly stochastics do NOT equate to a market top – more likely a Minor low the Monday after
  • BUT super low weekly stochastics do indicate a bottom is near
  • THE NUMBER ONE Opex setup is daily MFI OS during opex – it has almost always yielded a MAJOR bottom – last time? – November 2012
  • When rallying in to opex, the highest probability is for a top on Wed or Thurs of Opex – though the advantage is marginal
    • For the lows, Monday and Friday are the usual days with Wed and Thurs rarely being the day for a low
  • When falling in to opex, the highest probability is for a Monday high, followed by Friday high and the high of the week is almost NEVER on Thursday!
    • Tues, Thurs and Fri are evenly split with being the low day of the week – Thursday gap down opens can be very good lows. Low is almost NEVER on a Wednesday

Previous to 2013, hourly signals (9 period RSI or 14 period MFI above 75 or below 25) were very helpful in identifying opex turns. While in 2013, they were helpful later in the week, the signals themselves were not always profitable.

  • Hourly OB on Wed, Thurs and Fri – Getting short generally works
  • VERY RISKY to get short early in the week – NEVER DO it on TUESDAY!  Thursday and Friday are the best days with Wednesday being ok if you are patient
  • Hourly OS on Tues, Wed and Fri – BUY!
    • Hourly OS on Wed seems to always produce a tradable bounce, but not the low
    • Hourly OS on Thurs is a little riskier as it is rarely THE LOW
    • Hourly OS is best to use as a trading opportunity with a view that the final low will be post opex or on opex day – really need to see how the daily technical work

Post opex – look for tops on the Monday (occasionally the Tuesday)  – Hourly signals work reasonably well – though also extreme emotion  and BIG GAP UPS on the Monday!

  • Look for lows on the Monday or Tuesday after (and occasionally the Wednesday) – Hourly signals work well – though also extreme emotion – just be careful with hourly signals if it was a TOP on Opex
  • Post Opex Hourly Buys – If we have not topped on opex or post opex then these are reasonably good to very good and should be taken – only Nov 2011 was a disaster (though it did lead to a MAJOR bottom eventually)
  • Post opex Hourly sells:  All depends on what is driving this signal– have we already bottomed and are bouncing hard?  Are we rallying in to FOMC?  They can work, but situation should be evaluated

 

2013 Holiday Turning Point Review:

The idea for holiday turns is pretty straightforward:

  • Look for a turn +/- 1 day around holidays (though for some holidays  eg Thanksgiving I give a little more wiggle room).  Some holidays are much better than others.  For example, Thanksgiving and Memorial Day show a marked tendency for turns, while Christmas almost never has a turn and Good Friday is erratic.
  • I also note whether the turn had a reasonably clear signal or whether the turn was quite random.
  • Note:  VETERAN’s Day and Columbus Day are some times mentioned as possible turns – I have found NO discernible edge.

In 2013, there were TWO Major Holiday bottoms and TWO major holiday tops.

There were THREE minor tops and TWO holidays without turns…. The one that surprised with the failure to turn was the post opex MLK – which has been a VERY solid turn time in previous years.

Turns occurred:

  • THREE Times before the holiday (New Year’s, July 4th and Labor Day)
  • FOUR Times after holiday:  President’s Day, Good Friday, Memorial Day and Thanksgiving
  • TWICE:  There was no turn (MLK – a surprise and Christmas – as expected)

REVIEW:

New Year’s Eve – Tendency; Surprisingly good holiday for a turn particularly on the last trading day of the year, as there have been good buying opportunities when we have had short sell offs in to the holiday.

  • Result:  MAJOR BOTTOM on the day before (though futures were the Friday before) thanks to the fiscal cliff drama that caused a sell off that started during opex – we were then OFF on an epic January run

MLK (post Opex in 2013) – Tendency; Normally major turns on the Tuesday after – especially post opex:

  • Result:  NO TURN – despite being extremely OB on the daily and hourly time frames, there was absolutely no turn.

President’s Day (post Opex in 2013) – Tendency:  Not a great track record for turns… though if the holiday is post opex, there have been a few turns. With the ones in 2007 and 2011 leading to significant declines in to March opex

  • Result – Minor Top at the close on the Tuesday after when the SPX hit the upper bollo band. Market then had a brief volatile week long 45pt decline

Good Friday – Tendency:  Pre 2007, this holiday had a good track record for turns, but it has become more erratic since then.  Turns can occur up to 2 days after due to the 4 day European long weekend.

  • Result:  Minor Top on the Tuesday after at the Upper Bollo band. Declined for 3 days (till the employment report) and 34 pts.

Memorial Day – Tendency:  This holiday has seen significant turns every year since 2008– almost always on the Tuesday after.

  • Result:  MAJOR TOP – this was the re-test of the post opex highs. We gapped up strongly on the day, but found sellers and down we went. Final low was not until the post June opex bottom, but the exit day for this setup was the day before employment. The result was down 75 pts in 8 trading days.

July 4th (Pre Employment) – Tendency: Has been solid for turns…. But is dependent on when the employment report occurs. Some times the turns can take a while to develop (eg 2009 and 2011) –

  • Result:  MAJOR BOTTOM – but it would have been a tough one to play. Like in 2011 and 2012, we turned the day before the employment report.  In 2013, we had a brief 3 day pullback after soaring from the post June opex low and this pre holiday low was the last chance to get in before we screamed higher over the rest of July

Labor Day (pre employment) – Tendency:  This is a holiday to watch carefully, but the turns have some times occurred earlier or later – quite dependent on the release date of the employment report

  • Result: MAJOR BOTTOM:  This was an interesting one as the SPX made its low on the Friday before the holiday while after a post holiday gap up, the MID and the RUT made their bottoms on the Tuesday after the holiday. We had seen multiple hourly signals before the bottom, so it was clear a low was near. Rallied 104 pts in to September Opex

Thanksgiving – Tendency Turns post Thanksgiving are almost always the day after to a few days after and it has almost always been a bottom.  2012 was the only recent year that there was no turn as we had had the major OS bottom on the opex Friday.

  • Result:   Minor Top on the Day after Thanksgiving.  While the RUT really got roughed up after being super OB, the SPX just declined 34 pts to the Wednesday after

Christmas – Tendency:  Not worth messing with. There was a MAJOR TOP in 2007 and a Major Bottom in 2008, but nothing of substance since.

  • Result:  Nothing – while we were quite OB, market continued on until New Year’s Eve’s minor top.
 
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