Daily Commentary - Posted on Tuesday, January 25, 2011, 10:18 AM GMT +1

6 Comments


Jan Tuesday 25

State of the Union Addresses

Inspired by the most recent research presented by Wayne Whaley (CTA of Witter & Lester Inc.) analyzing the market’s historical performance at and around the State of the Union Addresses (which hasn’t been part of my personal arsenal of seasonalities up to now, and this seasonality takes place on today’s session), I thought it would be interesting to check for the S&P 500’s performance before 1970 as well (Wayne goes back until 1970), and in the event the market was already close to an 52-week high at the time of the State of the Union Addresses.

Table I below shows all occurrences (since 1990) and the S&P 500’s performance over the course of the then following 1 to 4 sessions, assumed one went long of a session immediately preceding the State of the Union Addresses in pre-election years (like 2011).

+ no close below trigger day’s close during period under review
no close above trigger day’s close during period under review

The market closed higher on the State of the Union Addresses session in pre-election years (like on Tuesday, January 25, 2011) on 16 out of 20 occurrences (or 80% of the time), and was trading at a higher level the session immediately following the State of the Union Addresses on 17 out of 20 occurrences (thereof the last 13). Chances for an +/- 1.0% change two sessions later (in this event on Wednesday, January 26) are 9 : 1 (9 occurrences with a 1.0%+ up-move, but only 1 occurrence with a -1.0%+ loss), and downside potential was regularly limited (except in 1931) over the course of the then following four sessions (the remainder of this week).

In addition, the S&P 500 did not post a single close below the trigger day’s close over the course of the then following four sessions on 8 out of 20 occurrences, but did not manage at least one higher close during the next four sessions only once (in 1931).

Table II below now shows all occurrences (since 1990) and the S&P 500’s performance over the course of the then following 1 to 4 sessions, assumed one went long of a session immediately preceding the State of the Union Addresses where the S&P 500 had closed at a 52-week high at least once during the last five sessions immediately preceding the State of the Union Addresses.


+ no close below trigger day’s close during period under review
– no close above trigger day’s close during period under review

Almost the same picture again. Even (despite the regular mean-reversion tendency) when the S&P 500 had already closed at a 52-week high at least once during the last five sessions immediately preceding the State of the Union Addresses, the market was trading on a firm note and closed at an even higher level four sessions later (in this event on January 28, 2011) on 18 out of 21 occurrences. Chances for an +/- 1.0% change four sessions later were 7 : 1 (7 occurrences with a 1.0%+ up-move, but only 1 occurrence with a –1.0%+ loss), and downside potential was regularly limited (except in 1953) over the course of the then following four sessions.

In addition, the S&P 500 did not post a single close below the trigger day’s close over the course of the then following four sessions on 9 out of 20 occurrences, but did not manage at least one higher close during the next four sessions only once (in 1953).

Conclusions:

(Unfortunately, no compliance in signals triggerd) Contrary to the negative setup triggered on Monday’s close when the SPY (S&P 500 SPDR) left an unfilled opening gap up on option expiration and closed higher on the then following session as well (see Gap on Option Expiration and Follow Through), seasonalities (State of the Union Addresses) are calling for a higher close (and limited downside potential) over the remainder of the week.

Successful trading,

 

Frank

 

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If the information provided is helpful for your own trading business, any donation to my Be it! Children’s Charitable Foundation is much appreciated (donations can be sent via PayPal).

Sincere thanks are given to all of you.

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

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

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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.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

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

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Comments (6)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht, zortrades and 50 Pips, Quant Blogs. Quant Blogs said: Trading the Odds: State of the Union Addresses http://bit.ly/dKhCSf […]

  2. […] THE STATE OF THE UNION 80% WIN RATE […]

  3. Anonymous says:

    Frank,

    Thank-You for everything that you do. I’m ashamed to admit that I have not donated to your new charity. I am planning on making a small donation to your organization in the near future. (I’m not just saying that so you’ll respond to my question ;D) I was wondering if there is any statistical vaildity to the super bowl indicator, beyond what the article writers have been saying year over year.

    Thanks again,

    Josh

    • TradingTheOdds says:

      Josh,

      thanks a lot for your kind words.

      I’ve heard about the super bowl indicator, but (as the State of the Union) never checked for its validity. Please allow for a couple of days because I’m not very familiar with the American Football League …

      Best,
      Frank

  4. Alex says:

    One more hints is that on Jan, 25 the S&P500 have closed above its 50-day SMA for 100 consecutive trading days. Check out what happened at the same 15 historical issues after 86 bars (roughly 4 months), since 1928 …

    • TradingTheOdds says:

      Alex,

      I don’t want to appear impolite but I’d appreciate if you would post your findings in the comment section instead of tasks to do this or that which you obviously have already done before.

      MA crossover are not part of my analysis.

      Best,
      Frank

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