Daily Commentary - Posted on Friday, December 30, 2011, 5:08 PM GMT +1

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Dec Friday 30

Trailing Week and Week-to-Date at Year’s End

When the markets showed an extraordinary strong performance on those sessions immediately preceding Christmas Day, but far less convincingly returns between Christmas Day and the end of the year, as a consequence the S&P 500 had performed better over the trailing week than week to date on the second-to-last or on the last session of the year.

Table I below shows all occurrences (since 1930) and the S&P 500′ performance (cumulative returns) over the course of the then following four sessions, until the end of the then following week, and until the 3rd Friday of January (OpEx since 1974) in the event the S&P 500 had performed better over the trailing week than week to date on the second-to-last session of a year in the past.

This has happened 9 times before (since 1930), and historical the S&P 500 managed to continue moving higher into the new year. The S&P 500 closed at a higher level two to four days later (in this event until Thursday, January 5) in 8 out of 9 years, and downside potential had always been limited: the $SPX closed lower 1.0%+ at those points in time on 1 (2) occurrences only, but up 1.0%+ on 7 (8) occurrences.

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Historical probabilities and odds are even more tilt in favor of higher prices in the event the S&P 500 had performed better over the trailing week than week to date on the last session of a year in the past (not being triggered this year).

This has happened 25 times (years) since 1930, and historical the S&P 500 managed to continue moving higher right at the start of the new year.

Table II below shows all occurrences (since 1930) and the S&P 500′ performance (cumulative returns) over the course of the then following four sessions until the end of the week in the event the S&P 500 had performed better over the trailing week than week to date on the last session of a year in the past.

The S&P 500 closed at a higher level two days later (in this event on Wednesday, January 4) in 21 out of 25 years, and closed at a higher level 2 to 4 sessions later on better than 3 out of every 4 occurrences. In addition, downside potential had always been limited: the $SPX closed lower 1.0%+ 2 to 4 sessions later on 1 occurrences only, but up 1.0%+ on 10 or more occurrences.

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Conclusion(s)

When the markets showed an extraordinary strong performance on those sessions immediately preceding Christmas Day, but far less convincingly returns between Christmas Day and the end of the year, the markets showed a (strong) tendency for pushing higher over the course of the next couple of days (weeks), indicating that the short- and intermediate-term trend will be (remain) up.

Have a profitable week, and I wish you a Happy New Year !

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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