Daily Commentary - Posted on Monday, December 26, 2011, 3:45 PM GMT +1

6 Comments


Dec Monday 26

Santa and 52-Week Highs/Lows

The Santa Claus rally has come in a bit late this year, but not too late, and its delayed presents had been quite impressive so far.

The SPY (S&P 500 SPDR) closed out the Xmas week with a 3.95% gain, closing above the previous session’s high on four consecutive sessions, and backed by volume associated with advancing stocks accounting for better than two-third of NYSE total volume four days in a row as well (a rare occurrence in itself).

On Friday, December 23, more than 5% of stocks listed on the New York Stock Exchange (NYSE) closed at a fresh 52-week high for the second day in a row, and less that 0.50% of NYSE-listed issues closed at a fresh 52-week low.

Historically, a high | low percentage of fresh 52-week highs | lows on the session immediately preceding Christmas Day had (significantly) short-term bullish implications. Table I below shows all occurrences (since 1960) and the S&P 500′ performance over the remainder of the year (in this event until Friday, December 30) in the event more than 3.20% (in order to get a statistically significant sample size) of NYSE-listed issues closed at a fresh 52-week high the second day in a row, or less than 0.50% of NYSE-listed issues closed at a fresh 52-week low (not necessarily on a back-to-back session).

The S&P 500 closed at a higher level over the remainder of the year (day by day) on 15 out of 16 occurrences (years), and posted at least one higher close either the next or the next but one session (in this event until Wednesday, December 27). The S&P 500 did never look back and did not post a single close below the trigger day’s close (the session preceding Christmas Day) in 14 out of 16 years, and (obviously) downside potential was almost non-existant.

 

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And even without taking into account the positive end-of-year seasonality, a strong run-up in the markets backed up by percentagewise lopsided volume in advancing vs. declining stocks on the NYSE had positive implications in the past (although the sample size is a bit low).

Table II below shows all occurrences (since 1990) and the SPY‘s (S&P 500 SPDR) performance over the course of the then following five sessions (in this event until Tuesday, January 3, 2012) in the event the SPY closed above the previous session’s high on four consecutive sessions, backed by volume associated with advancing stocks on the NYSE accounting for better than 60% of NYSE total volume four days in a row as well.

The SPY‘s (S&P 500 SPDR) posted at least one higher close above the trigger day’s close over the course of the then following five session on all 10 occurrences, and downside potential had always been limited during the period under review (no short-term mean-reversion). The SPY did never lose 1.0%+ (on the close) over the course of the next three sessions, and maximum downside had been -1.46% five sessions later.

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Conclusion(s)

Historical precedences suggest that the market will be heading higher over the remainder of the year.

Have a profitable week,

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). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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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 Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (6)

 

  1. Mark says:

    I believe we got more than 2.2% new highs and also new lows on Monday, which is part of Hindenburg Omen and I think all of the other requirements were fulfilled as well (It also happened December 15)

    Do you have any statistics worth sharing on the 2.2%?

    • TradingTheOdds says:

      Mark,

      I presented the stats with respect to the session immediately preceding Christmas Day, not for any day where new highs | lows exceeded a certain level.

      High (small) percentages of new highs (lows) are regular occurrences during bull markets (or significant run-ups), but not necessarily on a specific day of the year.

      Best,
      Frank

    • TradingTheOdds says:

      John,

      the posting is neither about the NYA index nor its 10 week high. Might be you’re commenting on the wrong posting or intended to comment on a completely different blog.

      Best,
      Frank

  2. John says:

    Hi Frank, I was commenting on Marks comment about all the requirements for the Hindenberg Omen. I should have explained myself.

    All the Best!

    John

  3. Bill says:

    Frank,

    It seems like the market is following a similiar pattern to 2009. I am concerned of a short term drop on friday and maybe thursday with profit taking and retail portfolio shuffling. Your thoughts?

    Bill

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