My New Interview With "Your Trading Edge" Magazine

Ben Power interviewed me for YTE magazine.  It just hit newsstands.  And it’s a cover story!  You can pick up a copy, or read it online.

How Has The Market Performed After Election Day?

Happy Election Day!  (Or is it Merry Election Day?)  Here is one view of how the SPX has fared following US elections from 1964 – 2008.

There is not a lot to glean from this.  But I would point out a couple of things.  1) Much of the negative total returns came thanks to the “Max Losing Trade”, which was 2008. 2) The “Max Winning Trade” over the next week is barely 3%.  So the election has not in years past served as a spark that led to a sharp rally.

Employment Days Just Ain't What They Used To Be

Employment days have an interesting history and they have contributed to some worthwhile studies over the years.  By “Employment Day” I mean days that the Federal Employment Report will be released.  This occurs once per month and is normally on the 1st Friday of the month. Below is a chart of SPY performance on Employment Days during bull market environments.  Each trade was a fictional $100k.

What I find so interesting about the chart is that for a long time Employment Days in uptrends showed a strong propensity for gains.  But in 2000 this edge vanished.  Since then there has been no apparent advantage – bullish or bearish.  While it’s unusual to see such an abrupt change in market dynamics, it does serve as a nice reminder that such changes are always possible.

When Fed Days Close at Intermediate-Term Lows

In last night’s letter I examined 20-day lows that occur on Fed Days during long-term uptrends. The results appeared interesting. You'll find the stats table below.

Over the first 1-4 day period there doesn't appear to be much of an edge. But over the 5-10 day period the market has reliably risen. Instances are low, but I still thought the two-week results were strong enough to keep in mind and give some consideration.

Big Gaps Down the Day Before a Fed Day

The pre-market indications are for a gap down of about 1% as I write this around 8:20am EST.  With tomorrow being a Fed Day I decided to see how the market has performed other times it has seen large gaps down on the day prior to a Fed Day.  This first study looks at performance from open to close on the day of the gap down.

Note that the only instance that did NOT gap down at least 1% was the last one on 12/12/11.  Instances are low.  Initial returns are mixed with a mild bearish tilt.

Now let’s see what happens if we hold through the Fed Day.

Here we see a big turnaround.  All the 1% gaps down turned net positive from their opens.  And the only instance not to see a gain of greater than 1% on the Fed Day was the last one (which gapped down less than the others to start). It added to its day 1 losses.

How the Market has Historically Reacted to Very Bad Fridays

In the April 19, 2010 blog I showed a compelling study that examined large drops on Fridays.  Both the Crash of ’29 and the Crash of ’87 happened on Monday.  The Crash of ’87 is still remembered by many traders that are active today.  There was a strong selloff on Friday and then all hell broke loose on Monday.  But since then strong Friday selloffs have commonly been followed by bounces on Mondays.  Perhaps this is due to the fact that fear of a crash causes what might otherwise be an ordinary selloff to become exaggerated and overdone on Fridays.  Or perhaps it is just that people don’t want to hold over the weekend.  Whatever the reason, the tendency to bounce has been very strong.  I’ve updated that 4/19/10 study below.

The numbers here are all very impressive and suggest a strong bullish bias.

A Seasonal Look At October Op-Ex Monday

Opex week during October has typically been a strong week for the market.  This can be seen in our op-ex week breakdown by month from March.  And much of the upside edge has been thanks to the strong op-ex Monday returns.  But op-ex Monday in 2008 was SO unusually strong (11.5% 1-day gain) that I decided to run the numbers excluding it.  So here is a look at October op-ex Mondays since 1984 not including 2008.

As you can see the numbers are still very favorable.  There appears to be a bit of a bullish seasonal edge today.