Daily Commentary - Posted on Thursday, February 3, 2011, 6:21 AM GMT +1

4 Comments


Feb Thursday 3

February’s Seasonalities

Apologies for the posting hiatus during the last week, but a) from my perspective there is not much to blog about (the trend is still up), and b) I’ve a lot of technical issues with my current domain hosting provider, and I’m preparing to move over to a new one in a couple of days.

Due to the recent news from Agypt, the S&P 500 sold off hard on Friday last week (the biggest 1-day loss since August 2010), but recouped all of its losses (and some) on Monday and Tuesday, posting a fresh 52-week high on Tuesday. But with Wednesday’s session (February 2, 2011), we’re entering into an short-term unfavorable seasonality for the markets.

The S&P 500 has closed lower on the third session in February in all of the last nine years, and was trading at a lower level five sessions later in the last six years. In addition, the S&P 500 has not managed a single close above the trigger day’s close (2nd session in February) over the course of the next five sessions in four out of the last nine years (see Table I below).


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

Therefore the market may consolidate some of its gains over the course of the next couple of days, but positioning it selves for a resumption of the uptrend.

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But an(other) intermediate-term bullish setup had been triggered on close of last Monday, January 31, 2011: The S&P 500 was up month-to-date right from the start of January and never looked back.

Table II below shows the S&P 500’s performance, the maximum gain and maximum drawdown (‘Max. Loss‘), and the business day (ordinal number) of the 1st quarter where the S&P had closed at its highest and lowest level during the 1st quarter in the past, between the 2nd session in February (assumed one went long on close of the 1st session in February) and the last session in March in those years where the S&P 500 was up month-to-date right from the start of January and never looked back during the entire month.


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

The S&P 500 closed at a higher level on the last session in March in 10 out of those 12 occurrences (since 1930), thereof the last 8 occurrences, and there was only one year (1942, WW II) where the market faced a significant loss.

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Conclusions:

Despite the fact that we’re entering into period (couple of days only) with a short-term negative seasonality, the market will probably position it selves for a resumption of the uptrend, and probabilities and odds are tilt in favor of some further gains at least over the remiander of the 1st quarter.

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 (4)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht, Quant Blogs. Quant Blogs said: Trading the Odds: February’s Seasonalities http://bit.ly/gMXLmU […]

  2. Alex says:

    I want to add a more bullish pattern for the month of February that show up on my screen after the release of the ISM Manufacturing on Feb, 1. This macro release has been published above 50 and above the highest survey taken, by Bloomberg, from a group of 78 economists. This pattern, since 1998, appeared other 15 times and in 13 (87% probability) the S&P500 was positive from the close of the release (Feb,1) toward the next 22 trading days. The two losses were -5.38% and -1.97% (with a MAE% of -4.78%). There is also a 87% probability that the month of February could reach, at some point, an advance greater than 3% based on this historical pattern.

    Technically speaking there are, anyway, major Fibonacci targets on SPX at 1315/1318 points, so this area should contain the high-of-the-month at least for the first half of February.

  3. […] THE 3RD DAY OF FEBRUARY HAS BEEN A DOWN DAY FOR THE LAST 9 YEARS […]

  4. Alex says:

    From my data (Bloomberg) I have also no major break of December close in January (no more than 0.25%) in 1952 and 1954. If we start this analysis from the Depression low of 1932 (instead of 1928) we found 15 issues and a 100% hit ratio of a S&P500 positive after 9 months (buy at the end of january and sell at the end of september) with an average gain around 10%!

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