The Odds That Turnaround Tuesday Lives Up To Its' Name...

I’ve shown before that of all days Tuesday has historically shown the highest propensity to halt a short-term pullback. The study below is one from the larger Turnaround Tuesday study. All stats are updated..

As you can see the market has strongly favored a quick move higher. And when that move hasn’t happened on Tuesday it has often happened in the next few days.

When SPX Closes Just Under a 50-day High Prior to a Fed Day

Yesterday I showed that Fed Days typically carry a bullish edge, but that edge failed to hold when the SPX closed at a 20-day high just prior to the Fed Day. By closing down 0.1% Tuesday the SPX narrowly missed closing at a 20-day high. So are we now safe because the market just missed a new high by 0.1% on Tuesday? Last night I suspected not. And so I ran the below test. Since we are near a 50-day high I used that as the filter rather than a 20-day high. I looked at times where the SPX did NOT close at a 50-day high, but in fact closed less than 0.5% below it. So although it is not a new high, the environment still appears positive. Let’s look at the results.

Twenty-five instances and the result is nearly dead-even. This is very similar to what we saw with yesterday’s study. I’m not viewing today as a typical strongly-bullish Fed Day.

Intermediate-Term Highs Prior to Fed Days

Wednesday is a Fed Day.  As I have discussed many times, Fed Days generally carry an upside tendency.  But this tendency is greatly impacted by certain variables.  A large collection of these variables may be found here on the blog under the “Fed Day”label.  And many more may be found in the “Quantifiable Edges Guide to Fed Days”.

One variable I briefly discussed in the 11/3/10 blog was whether the market was already at an intermediate-term high.  Today I thought I would illustrate that study graphically.

First, let’s take an updated look at SPX performance on Fed Days when the SPX has NOT closed at a 20-day high the day before.

That’s basically 30 years of bullishness.

But now let’s see performance at times when the SPX did close at a 20-day high the day before.

No consistency and no pronounced edge in this sample of 36 instances.

Traders looking to play for a short-term Fed Day bump should be hoping the SPX does not close up and at a new high again today.

When the Market Closes Strong Just Prior to Op-Ex Day

Despite the negative seasonality that is typical during January op-ex and MLK week (which are often the same) the market has continued to rise and closed Thursday at a new rally high. The study below was last seen in the 2/18/11 subscriber letter. It examines performance when the SPX closes in the top 10% of its 10-day range on the Thursday before op-ex. Stats have been updated.

The numbers here are fairly compelling and suggest a possible downside edge.  Prior to 2003 the edge was less pronounced but still negative.

January Op-ex Week's Recent Struggles

January op-ex week has been a tough week for the market since 1999. Interesting about January op-ex week is that it often occurs in conjunction with Martin Luther King Day. Below is a list of the last 13 January op-ex weeks with their performance results. Note that some of these weeks contained four trading days and some contained five. In either case the market was assumed to have been “bought” the Friday before op-ex Friday and “sold” on op-ex Friday.

As you can see there has been a decided downside tendency over the last 13 years. The drawdown / run-up stats at the bottom are especially compelling for the bears.

New High, Unfilled Up Gaps, but Weak Finishes

While the final numbers were good and the SPY left an unfilled upside gap, some traders may have been disappointed yesterday that the SPY finished in the lower part of its daily range. Historically, unfilled gaps and 20-day intraday highs as was put in on Tuesday have been followed by much more positive action when the rally closed meekly. Tuesday's action actually appears bullish. This is something I examined just last week in the 1/4/12 Subscriber Letter. Below is an excerpt from that letter.

I ran a test of performance following unfilled upside gaps that make a 20-day high. Below I’ve broken out the results by times the SPY closed above the open versus times where it closed below the open.


First let’s look at those times where the finish was relatively strong:

There doesn’t appear to be any edge in either direction here. Now let’s examine times like the present where SPY closed below the open.

These results are substantially better than earlier where the finish was good. Rather than worrying about the weak finish bulls should be excited by it.

When SPX is Above the 200ma and Closes Down on an Employment Day

One study that triggered on Friday examined performance the day after an Employment Day (typically the 1st Friday of each month) when the SPX was above its 200-day moving average and the Employment Day closed down.

The stats here are strong and all point to a decent upside edge.