Now Reading
Are We Myth-taken?
50

Are We Myth-taken?

by The MoleMarch 14, 2010

by gmak

Calling the post “The Ides of March” is a bit too obvious, and will probably be used by hundreds of bloggers. I’m a contrarian by nature, so I want to avoid any apocalyptic predictions today.

“As goes January, so goes the year”. “Invest ’til May, then go away”. “The trend is your friend”. We’ve all heard these quoted at some time or another. Do these hold any water?

I crunched the SPX numbers from 1982 until now to check this out. I used the close from the last trading day of year(-1) to the close of the last trading day of year(0) for the annual returns. I used the last trading day in January to get the January returns (again from the last trading day of the previous year). I used from Sept 30 -> April 30 for the ‘invest until May’, and from April 30 -> Sept 30 for the ‘go away’.   In each case, the myth held true 20 / 26 times (the 27th data point is 2010 which is not complete yet). 

As Goes January…..

Notice in the table below, that January 2010 was a negative month. There are only 9 years out of 27 where this was the case. Half of them didn’t resolve, meaning that the myth works best for January with a positive return. Otherwise, it is a 50/50 proposition at best – which means a coin toss.

Invest ’til May….

When October – April inclusive has a gain, there are 3 / 17 years in which May – September inclusive is a greater gain. Note that there were only 3 years where May – Sept had a loss, when Oct – Apr had a gain. If Oct – Apr has a gain, it is worthwhile holding on, probability -wise.  So far, SPX has about a 100 point gain since the close on Sep. 30, 2009.

When Oct – Apr is a losing period, May – Oct outperforms 4 / 7 times – all of them with gains. So it is safe to say that the loss part of the ‘invest ’til May’ myth is a coin toss as well.

YEAR As goes January So goes the Year             26 10 Invest Until May Then Go Away             26
1982     20       20
1983 3.3% 17.3% 1   36.5% 1.0% 1
1984 -0.9% 1.4% 0   -3.6% 3.8% 0
1985 7.4% 26.3% 1   8.3% 1.3% 1
1986 0.2% 14.6% 1   29.3% -1.8% 1
1987 13.2% 2.0% 1   24.7% 11.6% 1
1988 4.0% 12.4% 1   -18.8% 4.0% 0
1989 7.1% 27.3% 1   13.9% 12.8% 1
1990 -6.9% -6.6% 1   -5.3% -7.5% 1
1991 4.2% 26.3% 1   22.6% 3.3% 1
1992 -2.0% 4.5% 0   7.0% 0.7% 1
1993 0.7% 7.1% 1   5.4% 4.3% 1
1994 3.3% -1.5% 0   -1.7% 2.6% 0
1995 2.4% 34.1% 1   11.2% 13.5% 0
1996 3.3% 20.3% 1   11.9% 5.1% 1
1997 6.1% 31.0% 1   16.6% 18.2% 0
1998 1.0% 26.7% 1   17.4% -8.5% 1
1999 4.1% 19.5% 1   31.3% -3.9% 1
2000 -5.1% -10.1% 1   13.2% -1.1% 1
2001 3.5% -13.0% 0   -13.0% -16.7% 1
2002 -1.6% -23.4% 1   3.5% -24.3% 1
2003 -2.7% 26.4% 0   12.5% 8.6% 1
2004 1.7% 9.0% 1   11.2% 0.7% 1
2005 -2.5% 3.0% 0   3.8% 6.2% 0
2006 2.5% 13.6% 1   6.7% 1.9% 1
2007 1.4% 3.5% 1   11.0% 3.0% 1
2008 -6.1% -38.5% 1   -9.2% -15.8% 1
2009 -8.6% 23.5% 0   -25.2% 21.1% 0
2010 -3.7%            

 

Is the trend your friend?  My response is: Which trend?

 Monthly shows a move up from October 2009 – off of a lower trend line that seems to begin back in 2005. EUR has closed above the 55 Monthly MA, and above the 61.8% FIB (Not shown but from the high at 1.6038 in July 2009, to the low at 1.2330 in Oct. 2009).
The 10 month MA has crossed above the 21 MA (happened in December) – but they are both sloped down if that really means anything on this scale. OVerall trend = bullish for the EUR.
Monthly EUR:
http://www.uploadgeek.com/share-7AF4_4B9C3AE6.html

On the weekly scale, however, EUR stayed within the channel. The 10 and 21 Week MAs are in a bearish pattern. But TD Pressure is showing a low risk BUY that triggered last week. The FIB situation is  the same for the monthly – here the label says 38.2% but it is the same line as the monthly 62.8%. This could be a possible turn up for EUR on a seekly basis – but a close above the channel is needed to confirm. As well, there is that pesky (red line) TD resistance between the latest bar and the 55 weekly MA. Looking back a ways to Dec 2008 and May 2009, it seems that if the 55 wMA acts as resistance – there is a sell off. If it is pierced and holds that this sets up the move up. Overall – could go either way.
Weekly EUR:
http://www.uploadgeek.com/share-1889_4B9C3CB6.html

 

Daily EUR has closed above the channel (is this some sort of scaling error?). As well, the 10 and 21 DMA have just crossed bullish – which is usually a sign for traders to go bullish. 1.3814 at the 50% FIB stands in the way of a continued move up – could there be a bounce down to re-test the channel top before moving up? Can anyone else see the wide and round J-Lo bottom forming? It’s usually a precursor to a move up.

But, TD pressure does look a little overbought and, unlike SPX, it does not stay up there long; usually 3 – 4 days max (occasionally as much as 8 days – but this is rare). The GS call for EUR = 1.45 is suspect in light of their analysis about a slowing Europe.
Daily EUR:
http://www.uploadgeek.com/share-A55B_4B9C3DCF.html

I found a chart at Jesses American cafe. It is the third one down the page. http://jessescrossroadscafe.blogspot.com/2010/0…

Inspired, I did my own Weekly and daily SPX chart. As you can see, weekly DXY bounced off of the 55 DMA and is still above the support level (dashed yellow line just below) from January. TD Pressure has signaled oversold, and when it crosses above – this can take place during the week – this will be a “low risk BUY” from the DeMark indicators.

Weekly DXY

http://www.uploadgeek.com/share-9CE2_4B9D5427.html

Within that context, I drew the same channel on the daily DXY and you can see that DXY put a pin below, came close to the purple “eyeball” support line. This support line has held up quite well over the last two months. As well, the 55DMA lies below at 79.12 with more support. The 10 and 21 DMA have just crossed bearish. Offsetting this is the TD Pressure that has (like the weekly) gone into oversold and it will only take a move back above the green line to signal a “low risk BUY”. This usually happens within 3 – 4 days max (like the EUR, who knew?).

Daily DXY

http://www.uploadgeek.com/share-4DDE_4B9D53B9.html 

Again, I ask: Which Trend?

Summary:
Possibly a move up Sunday overnight to test the 50% FIB – a little back and forth – testing the top of the channel again, and then on tho the 55 DMA (yellow line) over the rest of the week. If not, then the weekly bar should close back below is channel. Still a few weeks left in the month for it to put in a higher high on its chart. It’s easier to play long here – but looking for the reversal in the short term.
Sound fair or far-fetched?

I keep looking at that FIB at 1.3746. On a 30 min EUR chart, there was a test of this level off of the ramp ffrom overnight on Thursday /Friday. Is this considered solid support – going into a weekend? The drive up afterwards was muted. Does this level need to be retested on the daily chart?

 

The Broken Clock 🙂

Lehman Brothers. Ernst and Young. Dick Fuld. Tim Geithner. Prostate tickle in prison orange. Tick. Tock. Tick. Tock.

 

EQUITY

Friday’s SPX bar was a ’43’. It followed a ’35’. One has to remember that there are 25 possible bar shapes, so any 2 bar combination should occur 1 / 625 (25 x 25) times, which is only 16 bps (0.16%). My data sample has  7038 data points, more or less, which means that each combination should occur about 11 times. This is not the case, but it may just be due to the fact that the sample since 1982 is not large enough. I’m not going to speculate on this, yet.

Anyhow, the ’35’ + ’43’ combination has occured only 6 times – or less than half of what would be expected. In that time, there were 2 x ’51’  = open near HOD, close near LOD; 2 x ’15’ = open near LOD, close near HOD; 1 x ’14’; and 1 x ’25’. The odds favour a day where the close will be above the open. Note that this does not reflect on where the open will be relative to Friday’s close. Just note that the trend is up still.

To trade intra-day, this suggests going long at the open. There is no better feeling that going long at the open and having Geronimo kick a little while later. heh.

What about the inter-day trade?

I wouldn’t go short here for a longer trade. If you are already short you might want to hedge beyond OPEX. I have no idea what will happen in an OPEX week – but the odds are hgiher of SPX staying above the 55 DMA than they are of it going lower.

SPX has spent a full 10 days above the 55 DMA.  The SPX falls back below the DMA only 4% of the time in the next 4 days. Given that SPX has made it to 10 days, the odds are 4% / 40% =  10% that SPX will go below the 55DMA in the next week. The odds are  90% that SPX will stay above the 5DMA for longer. Please note that this does not necessarily mean the SPX will go up. It could go sideways and the 55DMA could come up to meet it, crossing from below.

Maybe using the two positive slopes (based on the last 10 closes), is getting too ‘cute’.  If only the DMA slope being positive is considered, then there is a 19% chance that the SPX wll go below the 55DMA next week. There is an 80% chance that the SPX will stay above the 55 DMA beyond next week. Given that it has been there for 10 days already, there is a 77% chance that this will not happen for at least 10 trading days (2 more weeks). There is a 58% chance that SPX will not go below the 55DMA for at least another 20 trading days. This is based on data since 1961.

The piece de resistance is that there is a 39% probability that SPX will stay above the 55DMA for more than 40 more trading days. You can make of that what you will. That is a pretty fat tail. Too bad that being ‘above’ doesn’t mean that SPX is necessarily going up that whole time.

Days Above Frequency
0 0.0%
5 44.2%
10 16.8%
15 7.4%
20 1.6%
30 7.4%
40 5.3%
50 2.1%
More 15.3%

 OVERNIGHT

 

DATA

Empire manufacturing; TIC flows; Industrial production, and Capacity Utilization. These are numbers that might just raise big money’s hair on the back of their necks if they don’t come in as expected. Notice that most of this data is expected to be unchanged. The TIC flows are expected to decline to $47.5 billion from $60.3 billion in December.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
Enjoyed this post? Consider a small donation to keep those evil deeds coming!

BTC: 1MwMJifeBU3YziDoLLu8S54Vg4cbnJxvpL
BCH: qqxflhnr0jcfj4nejw75klmpcsfsp68exukcr0a29e
ETH: 0x9D0824b9553346df7EFB6B76DBAd1E2763bE6Ef1
LTC: LUuoD6sDWgbqSgnpo5hceYPnTD9MAvxi6c

  • http://retracementlevels.zstock7.com/ zstock, Pro Select!

    TGT and the other big 4 BOX stores, have the forward EPS to drive the RTH, much higher.

  • http://retracementlevels.zstock7.com/ zstock, Pro Select!

    Why would there be 2 corrections, one month, and then again the next month?

  • http://retracementlevels.zstock7.com/ zstock, Pro Select!

    Then there's this IYR conundrum,
    SPG chart It’s a short at $83, double top, or a break out to $88, IYR up to $52.40 = 7% higher, all deserved, which makes the QQQQ, go above 49-50–
    I'll stay 60% long, 40% short, thank you very much.

  • alessiov

    IT volume profile chart (daily deltas/ economic events/es pts)

    http://screencast.com/t/MTYyMWNhODEt

  • gmak

    Taxpayers are going to get stiffed as Boeing is given a sweetheart deal as sole supplier for the flying gas stations worht $35 billion, according to Bloomberg.

    It just keeps getting better and better.

  • kostee

    Thanks Myth Buster.

  • Schwerepunkt

    Great post, as always gmak. A lot of number crunching I see. There are indeed many myths in the market. I see ES is down more than 3-pts? WTF? That's not supposed to happen . . .

  • https://evilspeculator.com molecool

    Face it people – the U.S. is done and over – democracy is now a mere sham to keep the little people from revolting. Behind the scenes big money and power runs the show – as it always used to be – just a bit more extreme. Our forefathers are turning in their graves…

  • johnny

    hi folks, all extinct bears finding new reasons to buy this mkt , i think its like shorting nasdaq at 4500 or 5000 , end result has to be same.

  • Gold_Gerb

    If any myths held water, they would be exploited. yes?
    back to the broken clock.

  • de3600

    Educate and inform the whole mass of the people… They are the only sure reliance for the preservation of our liberty.
    Thomas Jefferson

  • Schwerepunkt

    TJ was wrong. The masses are asses, just waiting to be told what to do, what to think; what to buy and what to drink (who to hate and who to kill, as well, I might add). That's what the 20th century proved.

  • Schwerepunkt

    So, any ideas why ES is down 5-pts now? China playing tough? Health bill? Or is it Miller time?

  • johnny

    u dont hv to learn japanese to see a doji on friday

  • Gold_Gerb

    ..a little profit taking, nothing to worry about.
    😉

  • johnny

    yeah right 😉 , mutual fund monday will be funday for extinct bears 🙂

  • Schwerepunkt

    Dojis have become meaningless in this market. They don't signify indecision and a possible change in trend, it's merely the pause that refreshes. As I said, Miller time.

  • johnny

    mkt never waits for anyone , our opinions means nothing to mkt ,market got its own calculations and its own charts , lets all wait and see wat unfolds this week

  • alessiov
  • johnny

    Dr. Marc Faber told Yahoo Finance there's very few opportunities to make money in the market right now. Faber, however, is confident we won't “see 666 on the S&P 500 ever again.” He says “if we go down by 10-20% on the S&P 500, our money printer Ben Bernanke will flood the market, weakening the dollar,” and thereby driving up stock prices.

  • johnny

    i think marc faber has become lunatic now , if gs and feds of the world were so powerful , 2008 wud hv never occured , if they led the crash deliberately then wat stops them now , mkt is too powerful a beast for any particular cartel to control.it'll do wat it has to , people will come and go mkt will always be there

  • gmak

    I'd suggest that it's position squaring over increased likelihood that China tightens = liquidity coming out of the system.
    Asian currencies are under a little bit of pressure over tensions arising from China's Wen rebuffing calls from the USA for a stronger Yuan.

    If there has to be a reason. 🙂

  • ClutchShorter

    Naysayers are back again in full force?

  • johnny

    there's a reasonable chance of a rate hike by peoples bank of china this week , interestingly all rate hikes from 1990-2007 were unscheduled , so better to be prepared before the tiger strikes is the real reason

  • Gold_Gerb
  • gmak

    Here is a neat piece. Make sure you look at both charts. Of course the fact that one market at one time looks like another means absolutely nothing -but it is kind of cool.

    http://www.businessinsider.com/now-our-market-i

  • gmak

    Well, the myths do seem to work on the bullish side, but not the bearish side. As such, they can be exploited in up markets.

  • johnny

    wat pressure can washington exert on china ,washington should use all pressure in toilet else the tiger will bite.

  • johnny

    japan was never like USA , japan still one of the biggest creditor nation of the world,usa is a junkie land

  • alessiov

    2/22 footprint – very similar

    http://screencast.com/t/NTNiZmRmN

  • standard_and_poor

    Went 100% long Feb.05,2010 basis $Compx from 2101, currently at 2367.66 on March 12,2010.

    Will reduce longs Monday morning to 90% exposure. So far expecting current
    elliot wave to end in late March to early April 2010 in vicinity of 2465.71 to
    2492.72 basis $compx, I'll need confirmation of downward momentum to enter
    any shorts near that range. We expect to narrow down turning point range as time progresses but anything can happen and we'll try to remain flexible.
    http://www.youtube.com/watch?v=wdxIhNOgwBE

  • gmak

    Could you please explain how to read the footprint charts? They look intersting, but I'm afraid that I'm at a loss when it comes to understanding their significance.

    Thanks.

  • Biffermas

    Nice post, Gmak! Well done and based on the numbers, not the bias.

  • gmak

    Thank you sir! That means a lot, coming from you.

    Cheers.

  • gmak

    And your point is……?

  • alessiov

    u could start with these

    http://www.marketdelta.com/HOME

    http://tradeorderflow.blogspot.com/

    let me know if you need more info/sources

  • gmak

    So why did you mention the Doji from Friday?

    Your statements contradict each other. Are you just quoting from the Tao of the Dow?

  • gmak

    Thanks. It will have to wait until later. I'm about ready to pack it in. This Daylight savings time really burns my ass.

  • johnny

    well since most of james bond on this site are robot traders so i said doji on friday,and since someone said dojis are just bull shit these days so i said i gave that crap speech,nevermind cheers

  • AudioTactics

    From Bloomberg:

    U.S., U.K. Move Closer to Losing AAA Debt Rating, Moody’s Says

    March 15 – The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

  • alessiov

    I keep hearing about David Beckham's injury every 30 minutes on Bloomberg TV (internet), I still have not heard anything about the potential rating downgrade.

  • fast996

    I have been looking for a top since December,I though January was it,but it looks like this wave up since March was destined to be a 5 wave affair. Now that would imply a C of primary degree.

    When trying to forecast the end of any parabolic moves with certainty I think is fruitless. They die when they do and there probably won't be any warning.

    The only thing is that the the BTK has gone parabolic since the Febuary low so it could end tomorrow,which would time just right for a double top in the S&P.

    BTW Fridays Gap and crap to 1160 on the ES looks very nice as a reversal of some degree(major?).

  • https://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨
    ¨°º¤ø„¸ N E W „ø¤º°¨
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • Pingback: Hickory Dickory Dock. | the evil speculator - one nefarious trade at a time()

  • gmak

    🙂

    ________________________________

  • http://crisismaven.wordpress.com/ CrisisMaven

    Thanks for these trend analyses! Going back to 1982 is quite some proof.

  • gmak

    🙂

    ________________________________

  • http://crisismaven.wordpress.com/ CrisisMaven

    Thanks for these trend analyses! Going back to 1982 is quite some proof.

  • Pingback: Living Inside a Broken Clock: Tuesday, Mar. 16, 2010 | the evil speculator - one nefarious trade at a time()

  • Pingback: Another Day, Another FRN. | the evil speculator - one nefarious trade at a time()