Daily Commentary - Posted on Thursday, November 24, 2011, 7:18 PM GMT +1

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Nov Thursday 24

Turning Negative Year-to-Date in November

As already presented in Wednesday’s posting ( see Now or Never … ) and at first noticed by Rennie Yang from MarketTells (by the way wholeheartedly recommended), the S&P 500 is in extreme oversold territory now, not only characterised by an 2-day RSI (Wilder’s Relative Strength Index) of below 1, but by a third 90% down volume day during the trailing week (rolling 5-session time frame) as well.

As Rennie Yang already published on Twitter, the S&P 500 closed at a significant higher level one week later on the last three occurrences. But in fact the index was not only trading at a (significant) higher level one week later, but already closed at a higher level two days later on 11 out of 13 occurrences (since 1940), and was down 1.0%+ only once (in 1941, during WWII). In addition: The index never looked back and did not post a single close below the trigger day’s close over the course of the next two weeks on 7 occurrences or 50% of the time (means the index posted the lowest close for the period under review on the trigger day), while it never posted a higher close during the time frame under review only once (in 1941). Stats below …

 

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But a second interesting seasonality caught my eye today. The S&P 500 was down year-to-date right at the start at November, but up to now has switched back and forth (turned positive year-to-date, and back negative again) several times over the course of the month. Table II below shows those occurrences (and the S&P 500’s performance five sessions later, by the end of November and the end of the year as well, plus the maximum run-up and max. drawdown until the end of the respective year) where the S&P 500 turned negative year-to-date in November in the past.

Interesting to note that the index was regularly trading at a lower level at the end of November (6 higher, but 13 lower closes at then end of November, and this time will probably not be different, down at least -5.48%+ with four sessions left in November 2011), but always bounced back (big) during December (at the latest). The index was trading at a significantly higher level at the end of December on 17, and lower on only 2 occurrences, with a 15 : 0 ratio on 1.0%+ moves on the upside vs. downside.

Up to now (even on the most recent occurrences in November 2011, 11/14/2011 and 11/09/2011) the index has always posted at least one higher close over the remainder of the year (but 50% of the time already on the next session), and taking into account that the S&P 500 is already down -7.30% (‘max. drawdown‘) since 11/04/2011 (No. 20), there might be a huge potential on the upside going into the end of the year if history repeats itself and the index will not be down 1.0%+ (since 11/04/2011) on December 31 (the S&P 500 would’ve to gain approximately ≥ +6.30% over the remainder of the year in order to be fully compliant to historical probabilities and odds).

Happy Thanksgiving …

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.

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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 (1)

 

  1. […] Month of the year- Frank at Trading the Odds shared a great study of 9 prior years back to 1930 in which the market went negative in November, […]

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