Daily Commentary - Posted on Sunday, February 20, 2011, 12:52 PM GMT +1

4 Comments


Feb Sunday 20

SPX Hits New High before President’s Day

Whatever the fundamental or political news are, or even with historical probabilities and odds (heavily) tilt in favor of lower prices over the short-term, the market currently defies all negative odds.

At least two noticeable setups were triggered on close of Friday, February 18, 2011:

  • the S&P 500 hit a new high for the year (and a 52-week high as well), and
  • closed in the top 20th percentile of the daily trading range on the 7th out of the last 9 sessions,

which historically has had bullish intermediate- and long-term implications in the past.

First of all table I below shows the S&P 500’s performance (since 1930), the number of sessions and the maximum gain | loss (drawdown) over the remainder of the year (‘Annual Returns‘) in the event the S&P 500 hit a new high for the year at least once during the week immediately preceding President’s Day (celebrated on the 3rd Monday in February since 1971, and celebrated on February 22 before), assumed one went long on close of the session immediately preceding President’s Day and went back into cash on close of the last session of the respective year in the past.

Good news for the ‘buy and hold‘ investor. The S&P 500 showed a positive performance (over the remainder of the year) in 23 of those 25 occurrences (years), thereof on all occurrences since 1943, and was lower at the end of the year in 1931 (great depression) and 1937 (shortly before WW II) only. The S&P 500 hit the highest level of the respective year regularly in November or December (‘Day of High‘ greater then 200), while the lowest level of the year was regularly hit somewhere between February and June (‘Day of Low‘ less then 125).

Therefore any sizable pullback from current levels will probably provide a buying opportunity, targeting a close above 1343.01 at the end of 2011.

_______________________

Table II below shows all historical occurrences and the S&P 500′s performance over the course of the then following 1 , 2 , 3 , 6 and 12 months in the event the S&P 500 closed in the top 20th percentile of its daily trading range on the 7th out of the last 9 sessions in the past.

Historically, when late coming buyers in S&P 500 stocks were able to manage an index close near the (intraday) high of the day this often during a short period of time (noticeable that this never happened between 1930 and 1982), the S&P 500 closed at a higher level 3 and 4 months later on 16 out of 18 occurrences, and was lower -1.0+% 3 months later only once, but up +1.0+% on 13 occurrences.

In addition, the S&P 500 closed at a higher level (at least once) exactly 1, 2 or 3 months later on 17 out of those 18 occurrences.

_______________________

Conclusions:

Eventually the recent run-up in the markets will take its toll and a sizable pullback (living up to its name) will occurr, but this will most probably provide a favorable buying opportunity targeting even higher prices over the intermediate- and longer term.

And a short reminder: 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, see widget on the right side of the blog).

Successful trading,

Frank

_______________________

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.

_______________________

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

________________________________

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).

________________________________

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)

________________________________

Comments (4)

 

  1. Alex says:

    One question Frank … the Day’s High & Low are expressed in calendar days, right ? Or are in trading day but since the beginngin of the year instead form just after the Presidend Day ?

    • admin says:

      Alex,

      the Day’S High & Low always represent the business day of the year since the beginning of the respective year instead from beginning after the trigger day, correct.

      Best,
      Frank

      • Alex says:

        Great.

        I have check out today what happened to S&P500 when the weekly (14) RSI crosses 75, as of Feb 18. After 36 weeks (outlook to the third decade of October) the S&P500 was positive in 21 issues out of 23 since WWII. One of that negatives was just -1%. If you want I’ll show you more by email.

  2. James says:

    What happened to Frank?!!?

Leave a Reply

Your email address will not be published. Required fields are marked *