Daily Commentary - Posted on Saturday, December 4, 2010, 11:05 PM GMT +1

3 Comments


Dec Saturday 4

Triple Positive & Up gt. +3.0% Month-To-Date

The S&P 500 started into December with three up-days in a row, and is now up 3.74% month-to-date on the third session of the month. As shown on a previous posting ( see Looking Forward to a Strong December ), two strong up days (each with a gain greater than +1.0%) right at the start of a month had significantly positive implications looking at the respective monthly performance.

But probabilities and odds are even more tilt in favor of a positive monthly performance where the S&P 500 started into a month with three consecutive higher closes, at the same time being up greater than +3.0% month-to-date on the close of the third session of a month in the past.

Table I below shows the date of the last session of the month (‘End-of-Month Day‘), the S&P 500′s historical (since 1930) performance (‘Monthly Returns‘), the respective number of sessions, the maximum gain and the maximum loss (drawdown) during the month (assumed one went long on the last session of the previous month), and the respective monthly performance for the previous (‘Prev. Month‘) and the then following month (‘Next Month‘) on those occurrences (month) where the S&P 500 closed higher the first three sessions of a month, at the same time being up greater than +3.0% month-to-date on the third session of a month in the past.


(* no close below trigger day’s close during period under review)

Table II below shows the respective weekly (for the respective month traded) and monthly key performance figures like the number of weeks / month traded, the percentage of positive weeks / month, the median weekly / monthy return, … and the maximum gain and loss for the respective weeks / month traded.

It is interesting to note that

  • … the S&P 500 closed out the month with a gain on 35 out of 40 occurrences (or 87.50% of the time), thereof the last 21 ;
  • … the median monthly gain of +6.21% significantly surpassed the S&P 500’s at-any-time monthly performance of +0.88% ;
  • … the median weekly gain of +1.35% significantly surpassed the S&P 500’s at-any-time weekly performance of +0.28% ;
  • … the S&P closed out the month with a loss greater than -2.0% only once (1932), but finally gained more than +5.0% for the month on 26 out of 40 occurrences (or on 2 out of every 3 occurrences), and more than 7.50% on 18 occurrences (or almost 50% of the time) ;
  • … with Distribution of Returns at 84.96%, the median monthly return is ranked in the top 15% of the respective at-any-time monthly returns ; and
  • … the S&P 500 never looked back and did not post a single close below the previous end-of-month close (‘max. loss‘ is positive) on 28 out of 40 occurrences (or 70.00% of the time).

Conclusions:

From a statistical and historical point of view, after posting three consecutive higher closes right at the start of the month (and being up gt. 3.0% month-to-date on the third session) probabilities (winning percentage) and odds (expectancy) are even more tilt in favor of a positive monthly performance in December, and additionally there is a significantly above-average probability that November’s end-of-month close (S&P 500 at 1180.55) will not be penetrated during the recent month. Any short-term consolidation of recent gains might provide a buying opportunity targeting higher prices during the remainder and / or at the end of December.

Successful trading,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (3)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht, Jason Kim. Jason Kim said: Triple Positive & Up gt. +3.0% Month-To-Date http://bit.ly/fCTyhZ […]

  2. Toptick says:

    Hi, Frank:

    Do you happen to know the mean or median return of the 3 days that meet the criteria?

    To form an expectation of performance for the remainder of the month (the trade we would make based on this trigger), you of course would want to subtract the first 3 days’ return from the total month return. We know the first days would be greater than 3% by definition, but if greater than about 5.33% there is no advantage over the benchmark performance of 0.88%. The measures of significance or performance (distribution of returns, drawdown, etc.) will also be reduced.

    Anyway, thanks for your continued excellent contributions!

    • TradingTheOdds says:

      Toptick,

      thanks a lot.

      Respective stats can be found at http://twitpic.com/3deenq.
      (Assumed one went long on close of the 3rd session of a month where the SPX closed higher the 1st three days of a month, and up gt. 3.0% month-to-date on the 3rd session; 18 days later more or less – +/-1 day – equals the end-of-month session).

      Although chances (and odds) for a profitable close 18 days later are (partly significantly) above-average, it is better to wait for a pullback before going long for the remainder of the month.

      Best,
      Frank

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