Daily Commentary - Posted on Wednesday, November 23, 2011, 11:17 PM GMT +1

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Nov Wednesday 23

Now or Never …

I’d to utilize historical S&P 500 closing prices instead of my regular intraday SPY (S&P 500 SPDR) data in order to check for those occurrences where major market indices (stubbornly) defied all positive seasonalities and/or favorable probabilities and odds calling for an at least short-term bounce due to already oversold market conditions.

The S&P 500 closed lower on the sixth consecutive session (the last time the S&P 500 closed lower six sessions in a row in November was in 1974) – thereof the last three immediately preceding Thanksgiving holiday – , and the SPY closed below the open on the sixth consecutive session, and opened lower and posted a lower high both on the seventh consecutive session.

But historically weakness on the 3-day time frame immediately preceding Thanksgiving holiday had negative implications at least over the course of the then following five sessions. Table I below shows those occurrences (trigger day is on close of the session immediately preceding Thanksgiving holiday) and the S&P 500’s performance by the end of the week (regularly the then following Friday, but in some years on the the following Saturday), by the end of the month (always November, in this event on Wednesday, November 30) and by the end of the year in the event the S&P 500 closed lower on all of those three sessions immediately preceding Thanksgiving holiday in the past.

 

The S&P 500 posted at least one lower close over the course of the then following five sessions on all 12 occurrences, and upside potential over the remainder of the month was regularly limited (the S&P 500 gained ≥ 1.0% until the end of November only once, but lost an additional 1.0%+ in six years). A buying opportunity was regularly presented at or around the final session(s) of November (the S&P 500 gained ground during December in 11 out of those 12 occurrences listed above).

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As Rennie Yang from MarketTells already pointed out (on Twitter, posting for subscribers only), the S&P 500 2-day RSI (Wilder’s Relative Strength Index) closed below 1 today, which has provided a favorable and reliable short-term buying opportunity (at least) in the past. Table II below shows the last 43 occurrences where the S&P 500 2-day RSI had closed below 1 (including consecutive occurrences), and the S&P 500’s performance over the course of the then following 1 to 3 sessions (as well as the number of sessions until the S&P 500 posted a higher | lower close).

Historically probabilities and odds are significantly tilt in favor of an at least short-term bounce. Out of those 43 occurrences during the more recent past, the S&P 500 posted a higher close one or two sessions later on all but one occurrence, calling for a potential higher close on the shortened session on Friday this week.

Happy Thanksgiving, and more to come probably tomorrow (I am currently busy working on my stats, as to be seen of the top one with ‘by the end of the period‘ performance data).

Frank

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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