According to the Stock Traders Almanac, the first 5 days of the New Year can be a road map for the year. The last 38 times the 5th trading day in January closed above the prior yearly close, the market had a positive year 33 times with an average gain of 14%.
Among the five exceptions, there have only been three serious double-crosses: 1966 (-13.1%), 1973 (-17.4%) and 2002 (-23.4%).
Further, if the first five days are up more than 1.6%, the indicator is 16 for 16 in predicting up years with an average gain of 17.5%.
Among the five exceptions, there have only been three serious double-crosses: 1966 (-13.1%), 1973 (-17.4%) and 2002 (-23.4%).
Further, if the first five days are up more than 1.6%, the indicator is 16 for 16 in predicting up years with an average gain of 17.5%.
A down first five days is not as predictive. The last 23 times the 5th trading day in January closed below the prior yearly close, the market had a negative year 11 times.
We'll revisit this post on Friday afternoon. For reference, the S&P closed 2010 at 1257.64.
We'll revisit this post on Friday afternoon. For reference, the S&P closed 2010 at 1257.64.
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Posts
Parker.
ReplyDeleteYou wrote that "USO, UNG and a lot of other ETFs have built in decay as a result of monthly contango losses (they roll over the front contract every month). They are sucker plays from the long side."
I have two questions:
(1) where did you find out the info about USO or UNG are being managed and having "monthly contango losses" ?
(2) As far as I am aware, almost all ETFs (especially leveraged ETFs) are managed by buying / selling Futures contracts, not by buying/selling the actual underlying securities. The commission costs are too high to manage them on the equity side. How else would one manage SPY, SPXU, TZA, etc if not through Futures contracts? These ETFS don't seem to have appreciable slippage.
Achilles
ReplyDeleteHere's one article I read about it nearly 2 years ago.
http://seekingalpha.com/article/123577-is-the-uso-etf-a-piece-of-junk
I have not studied why it is some ETFs (leveraged or otherwise) seem to track the underlying better than USO and UNG.
My suggestion is to create a 2+ year chart and simply overlay the ETF you are considering on top of the underlying. See if it tracks well enough for you.
parker - Is there any way to construct a T on the nasdaq advance-decline line? I'm looking at the 4/26 highs and the lows in august which would end late december...but I don't know all the proper rules in ttheory to use these
ReplyDeleterjo
ReplyDeleteYou are venturing into un-chartered territory with the Nasdaq AD Line. Try going back in time and constructing Ts with it - it's virtually impossible.
As you point out, you can draw a T with it using the April 26 high as a starting point and late August low as a center post. Depending on where exactly you place the center post, the top was projected in late December or is expected the first week in January.
But I wouldn't put too much stock into it. Even if we get a correction soon in the Nasdaq, you could argue it has more to do with the divergence between price and the AD lines (both issues and volume) than it does with any T construction.
Parker I see your point
ReplyDelete..when I "zoom out" it looks like noise thanks much. And happy belated new year!
On the ETFs:
ReplyDeleteThe reason USO and UNG have HAD decay is due to the contango effect (back futures have higher prices than the front futures - due to interest rates, which is the case for financial futures as well, but also due to storage costs, which is NOT the case for financial futures).
In the future, if the contango changes to backwardation, this might result in the ETFs outperforming the underlying.
Achal
ReplyDeleteThat's true. However, the normal state of affairs is contango.
Backwardation (where the front month contract is more expensive) is relatively uncommon (especially where storage costs are an issue) and usually doesn't last long.
Remember that T also was very bullish on Bonds which have subsequently collapsed and has called a top on Gold which has broken out and is very strong still.
ReplyDeleteFinal blow off top?
ReplyDeleteI know it sure has blown off something. My Puts are getting blown off the top today. hahahahaha
Question: Has a bull market ever got started at this overbought, overvalued, overly optimistic environment, with a rising yield situation?
Answer : Never.
But but but...."THIS TIME IT IS DIFFERENT!!"
Or is it?
SC
ReplyDeleteBlow off top?
Historically, the best 6 months of the year are November 1-April 30.
The market does not reflect the economy, it reflects the confidence and optimism in the 6-12 month future. So the market is not a rational place. Is the market on the most solid ground ever? Not at all. I don't think it would take very much to tip it over, but at least from a technical perspective, as long as we're above the 200day MA, the bias is going to be to the upside. Someone I read said this the other day and it makes sense. "In bull markets, the surprises come to the upside." Alternatively, in a bear market, I'm sure the surprises are to the downside. Doesn't the market often have the tendency to trade further than we ever think it will? Trade the trend 'til it isn't the trend anymore. Going short in any committed way without confirmation in a bull market is suicide. Hopefully anyone here who got caught by this up move today only had a small position on. However, once the market holds below the 200MA, the odds will be in favor of shorting/buying puts. Good luck everyone, let's see where this goes.
ReplyDeleteBTW, FXI broke out this morning, too, looks good. If it's still here at the end of the day, I'll put 1/2 on and add another 1/2 if it tests the trendline. If it doesn't, I'll just let the 1/2 run until I want to take profits.
The first of 5 solar eclipses in 2011 occurs at 12:57am EDT tomorrow morning, visible in Bulgaria at 7:57am then across Western Europe at approximately dawn. The SE energy is, IMHO, at play today.
ReplyDeleteThe Spiral Calendar using the starting date of Oct. 11, 2007 has F17 hitting today. Other hits on this SC were: 5/17/2008 (2 days off the high), 7/15/2008 (the low), 9/29/2008 (panic low day), 1/3/2009 (a Saturday, 2 TD off the high), 5/6/2009 (2 TD off the high), 4/25/2010 (1 day off the high), and TODAY (??).
EWI as reported by Yelnick http://yelnick.typepad.com/yelnick/2010/12/after-the-santa-rally-a-technical-analysis.html#more
Futures traders: most bullish in 4 years
AAII Individual investors: most bullish in 6 years
II Advisors: most bullish in 3 years
Mutual fund cash: all time low 3.4%
Correction: the first of 4 Solar Eclipses, not 5 solar eclipses. There are 2 lunar eclipses also.
ReplyDeleteHey Daniel B..
ReplyDeleteI resemble that remark!
My momentum change indicators generated a sell signal late last week in the QQQQ, so I got short. and stopped out this morning at 55.69, for a 1.09 loss. But the QID I bot at 11.56 is still active. The rest of my long positions are actual longs... and they are just fine, thank you very much!
Momentum in the SPX continues to the upside, with the Buy signal generated 12/1 still in effect. Although, I must admit I am not that much impressed by the SPY hourly.
http://stockcharts.com/h-sc/ui?s=SPY&p=60&yr=0&mn=1&dy=0&id=p77860303846&a=199080729
Where is the volume?
Bill
Parker,
ReplyDeleteIn Terry's weekend update he shows an intermediate T starting at 6/15 based on it being the highest reading of the oscillator and the start of a cash build up phase. At the below link the volume oscillator shows a higher high at 7/26? Why is there a difference between Terry's plotting of the Mclellan Volume Oscillator and the below chart?
http://www.mcoscillator.com/market_breadth_data/
Breadth and price continue to diverge. Breadth has not closed below - 1000 since Nov. 23, which is an extraordinarily long time. More specifics and Market Profile levels here:
ReplyDeletehttp://bit.ly/eHXSlV
Mike
ReplyDeleteThe VO made peaks of 134 on June 15, 118 on July 13, and 124 on July 26. These are accurately depicted on Terry's chart at:
http://ttheory.typepad.com/files/dailychart20101231pdf.pdf
Parker - I must be dumb, blind or both, but in the below link directly from the Mclellan site, the July peak is definitely higher?
ReplyDeleteOn June 15th, the oscillator peaks at 251 and on July 26th, it peaks at 302?
I don't understand the difference?
http://www.mcoscillator.com/market_breadth_data/
Mike
ReplyDeleteThat graph shows the McClellan issues oscillator. Terry plots a volume oscillator that is almost identical to the McClellan volume oscillator divided by 1000 and rounded off.
Hi Bill,
ReplyDeleteIf you took offense at my words, I don't know why. Tops are generally harder to identify than bottoms from my studies. I was simply saying that (for myself) I always wait for some kind of price reversal before going short, but to each their own. We're all using different systems. I spent a lot of time going against the trend in 2009 and it was a painful lesson.
That said, I do have some signals that I use when I see some breadth indicators giving me warnings to go short which work more often than they don't, but the positions are small and don't do much damage if they are stopped out. That's my style.
By the way, is there any way you can make your charts a little smaller? I usually have to save them and then view them because I can only see 1/4 of the image from the stockcharts site.
Daniel
ReplyDeleteNo offense.....I said "I resemble that remark"... it was meant to be humorous.
I do in fact spend all of my time recognizing trend changes.. and I have a pretty good track record. Regarding the short in the Q'a, my indicators did in fact register a change in momentum.... I think it was Thursday without going back and looking.. and I got short. I did not have a long position on at the that time, in that ETF. It is important for me to remember that I am not going to get the top, nor will I get the bottom... all I want is to recognize quickly when a momentum change has occurred and be able to act on the recognition .
But as I am sure you already know, no strategy is fool proof. the only thing that is important to remember is to keep losses small, and if a mistake shows itself immediately, get out. Which I did.
The good news is that there is always another trade coming along, and I will have a better than average chance of making the right call.
Best to your trading.
Bill