Daily Commentary - Posted on Wednesday, January 4, 2012, 10:08 AM GMT +1

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Jan Wednesday 4

As Goes the First Day of the Year …

2012 started with a bang, with major market indexes (and Gold as well) finishing up 1.5%+ on Tuesday’s close. The S&P 100 closed at a trailing 3-months high, and the S&P 500, the AMEX Composite and the Russell 2000 at a trailing 1-months high.

There is a lot of discussion in the financial blogosphere today concerning the question if – and to what extend – a strong first session of the year has been a guide for the rest of the week, the month and the year in the past, but almost always checking for the S&P 500′ absolute performance (e.g. ≥ 1.0%) only. But sometimes it pays to think outside the box.

On Tuesday, January 3, 2012, the Russell 2000 closed at a fresh trailing 1-months high, which had significantly bullish implications in the past. Table I below shows all occurrences (since 1987) and the Russell 2000′ performance (cumulative returns) until the end of January (´by the end of the month´), until the end of March (´2 months later (EoM)´), until the end of June (´5 months later (EoM)´), until the end of September (´8 months later (EoM)´) and until the end of December (´by the end of the year´) in the event the Russell 2000 had closed at a trailing 1-months high on the first session of a year in the past.

The Russell 2000 closed at a higher level at the end of June, September and December on all six previous occurrences, always up (almost) +20.0% at the end of the year. If history has been a guide …

 


Table I

Russell 2000® at a trailing 1-month high on the first session of a year

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The AMEX Composite Index gained +1.95% on Tuesday’s close, falling into the top 10% (in fact the top 2.5%) of the (at any one time’s then current) index’ historical daily returns which had positive short- and intermediate-term positive implications in the past.

The AMEX Composite continued moving higher on the 2nd trading day of the year on all 8 instances, and closed at a higher level at the end of June (´5 months later (EoM)´) and at the end of September (´8 months later (EoM)´) in 7 out of 8 years.

In addition: When the 2-day RSI (Relative Strength Index) for the AMEX Composite Index closed above the 90 level on the first session of a year, the index posted another higher close on the then following 2nd session of the year on all 9 out of 9 occurrences.


Table II

AMEX Composite w/ Top 10% gain on the first session of a year

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And last but not least: Gold gained +1.78% on Tuesday’s close, falling into the top 10% of the (at any one time’s then current) commodities’ historical daily returns which always led to higher closes looking out several months into the year.

Gold closed at a higher level at the end of January (‘by the end of the month‘), at the end of June (‘5 months later (EoM)‘), at the end of September (‘8 months later (EoM)‘) and at the end of December (‘by the end of the year‘) on all 7 occurrences, and at the end of March (‘2 months later (EoM)‘) on 6 out of 7 occurrences. In addition: Gold was up 10.0%+ at least once at those points in time listed below.

If history has been a guide, Gold will probably shine bright this year.


Table III

Gold w/ Top 10% gain on the first session of a year

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Conclusion(s)

At least with respect to the Russell 2000 and Gold, when the year started with a bang in the past, it regularly remainded so for the rest of the year (but subject to a temporary drawdown during the 1st quarter 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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