Discover Top Posts Tagged with #$sso

January-February Gains A Strong Sign

At Friday’s close February 15 the S&P 500 was up 10.7% YTD. The top 30 YTD gains at the February high are ranked by gain in Table 1 above. S&P 500 tacked on gains in 25 of those 30 years for an average gain of 11.3%. Overlay our January indicator Trifecta and two losses disappear.

In the second table below the 27 years that the S&P 500 gained ground in both January and February since WWII appear. There is only one full year loss on the S&P cash index in 2011 and it’s puny, and there are only 2 losses in the following March-December period in 1987 and 2011 – both were in Trifecta years.

No matter how you slice it, gains earlier in the year are generally a solid indication for gains the rest of the year.

#$^GSPC #$SPY #$VOO #$SDS #$SSO

Is Overbought A Good Thing?

The stock rally has gotten overbought -- is it a sign of further momentum or of the end-game?

There are many ways to determine overbought and oversold conditions in the stock market. We recently took a look at the overbought nature of the market from a long-term, 30,000-foot perspective. Today, we look at things on a shorter time frame, considering the status of the post-December bounce.

Most people would likely agree that after a 15% rally in the S&P 500 in about 6 weeks, this bounce has gotten overbought. One way of determining just how overbought the market is is by looking at various measures of momentum, e.g., the relative strength index, or RSI. Generally, a reading above 70 is considered “overbought”. A few days ago, the SPX registered a high RSI (14-day) reading of 67.5. Considering the depths from which the indicator was recovering, that’s close enough to “overbought” for us. That is especially true given the unusual circumstances surrounding this reading -- specifically, the fact that the index is still trading below its 200-day simple moving average.

How unusual is this? Going back to 1965, or more than half a century, there have been over 13,600 trading days. Just 58 of those days saw the SPX below its 200-day moving average while the RSI was over 67. Of just the 4200 days during that period when the index was below the 200-day moving average, 58 represents just 1.3% of those days.

So is this a good thing or a bad thing? We’ve heard a lot of commentary lately that this is a “good overbought” reading as it suggests further momentum going forward -- and there is solid evidence to back up that assertion. However, considering the fact that the index is below the 200-day moving average, we also have to wonder if it is merely an overbought reading in an ongoing downtrend. What does history tell us?

This chart shows the prior instances of such conditions over the past 54 years.

As the chart indicates, most of the historical events took place within a secular bear market. That’s not surprising since the SPX is below the 200-day moving average more often during such markets. The chart also indicates that some of the readings have preceded good returns and some have preceded awful returns. What is the determining factor?

We found that in instances where the market was coming off of an extreme, longer-term oversold condition, this signal generated consistently good longer-term returns, a median 1-year return of +22% to be precise. However, following signals where our extreme oversold condition was not satisfied, 1-year median returns were an abysmal -14%.

So into which category does our present case fall? We take a look in a post at our “all-access” site, The Lyons Share. If you are interested in an all-access pass to our research -- and our daily investment moves -- we invite you to check out the site. Given a treacherous emerging market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.

#$SPY #$^GSPC #$SSO #$SDS

S&P 500 Down 6 of Last 6 Fed Announcement Days

On Wednesday another Fed meeting will come to an end and another statement regarding monetary policy will we released. As of today, CME Group’s FedWatch Tool is currently showing a 69.7% chance the Fed will raise rates to a new range of 2.25 to 2.50%. Unlike previous rate increases, there is a hint of doubt whether or not the Fed will raise this time. A flat/inverted yield curve has spooked traders and investors as it has historically been followed by a recession and the market has been trading accordingly.

During the current Fed tightening cycle, rates have been raised in 0.25% increments 8 times with the first occurring on December 16, 2015. The second increase came nearly a year later on December 14, 2016. With the exception of the September 2017 Fed meeting, a rate hike has occurred every month in the last month of the quarter since December 2016. S&P 500 has advanced just two times out of the eight announcement days when rates were increased. Combined with the recent streak of six losing Fed days in a row, it would appear the market is growing less and less pleased with the direction the Fed is taking.

In the chart below the 30 trading days before and after the last 86 Fed meetings (back to March 2008) are graphed. There are four lines, “All,” “Up,” “Down” and “Rate Hike Days” Up means the S&P 500 finished announcement day with a gain, down it finished with a loss or unchanged. Rate Hike Days are the eight times a hike was announced. Note how past down announcement days have, on average, enjoyed the best gains over the next 30 trading days.

Of the last 86 announcement days, the S&P 500 finished the day positive 48 times. Of these 48 positive days S&P 500 was down 28 times (58.3%) the next day. Of the 38 down announcement days, the following day was down 22 times (57.9%). All 86 announcement days have averaged 0.37% S&P 500 gains while the day after has been a net loser with S&P 500 declining 0.31% on average. S&P 500 has declined six times in a row on Fed announcement day.

#$VOO #$SPY #$^GSPC #$SDS #$SSO

A New Low: Just What Investors Wanted For The Holidays?

The S&P 500 has rallied into year-end following every December 52-week low in its history.

In the midst of the carnage on Wall Street, we are here to bring a little more holiday cheer to Wall Street. Last week, we showed that December spikes in volatility term structure have invariably led to gains by year-end. Today we look at another piece of seemingly bad news, i.e., a new 52-week low in the S&P 500, that may actually turn out to be a gift for investors. To wit:

Yesterday saw the S&P 500 close at a 52-week low for the first time in nearly 3 years. The fact that it occurred in December was a rather uncommon event. In fact, of the 290 52-week lows since the index’s inception in 1950, this is just the 9th occurring in December. The good news for investors? Each of the prior 8 saw the S&P 500 at higher levels by year-end — significantly higher in most cases.

As you can see, the 1987 event was the big winner, with the S&P 500 rallying by more than 10% into year-end. However, most of the events saw sizable gains considering the short window. 5 of the other 7 saw gains of at least 3%. If the S&P 500 were to match the average of the historical events (or median — they’re both just above 4%), it would put the index at around 2650 on December 31. That doesn’t seem unreachable — it’s just a matter of the route the S&P takes to get there.

In any event, like the post on the volatility “gift”, this data point certainly isn’t a basis on which to build a sound investment process — at a minimum, we wouldn’t be putting all of our eggs in this “gift basket”. However, if history is any guide, the new low is also not something, in itself, to get all Scrooge-y over.

If you are interested in an “all-access” pass to our research and investment moves, we invite you to further check out The Lyons Share. FYI, we are currently holding our HOLIDAY SALE offering big savings for new members. So considering the discounted cost and the current treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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#$SPY #$SSO #$SH #$^GSPC

Trading Thanksgiving: Long Into Weakness, Exit into Strength by Week’s End

Trading around Thanksgiving has a bullish tendency perhaps buoyed by the “holiday spirit.” First published in the 1987 Stock Trader’s Almanac, the Wednesday before and the Friday after Thanksgiving combined were up 34 times in 35 years. The only S&P 500 decline was in 1964.

Subsequently, this trend changed. In the 31 years since 1987, there have been 8 declines and 22 advances. The best short-term trade appears to be getting long into weakness on Monday or Tuesday of Thanksgiving week and selling into any subsequent rally by the end of Thanksgiving week, but remain nimble as events like Greece’s debt crisis in 2011 can cancel Thanksgiving on Wall Street.

Also of note is the change in the yearend rally. Prior to 1987, from the close of trading on the Friday after Thanksgiving to yearend, the S&P 500 rallied only 20 times in 35 years. As Thanksgiving bullishness lost steam in 1987, the rally afterwards occurred more frequently. Since 1987, S&P 500 has logged gains in 24 of 31 years from the close on Friday after Thanksgiving to yearend.

#$SPY #$^GSPC #$VOO #$SDS #$SSO

S&P 500 Not the Best Economic Indicator

On a closing basis, the S&P 500 nearly reached correction territory in late October when it declined 9.88% from its high close on September 20 to its recent low close on October 29. After bouncing higher ahead of and after Election Day, S&P 500 has fallen for four straight days and is on track for a fifth day of losses today. But, just how good of an indicator is the S&P 500? Is it really on track to forecast a U.S. or global recession in the near future? A look back at S&P 500 past track suggests about a 1 in 3 chance of recession at this point.

Click here to view table full size…

First a quick review of definitions. A bear market is defined as a 20% or greater decline in the S&P 500. A correction would be a decline greater than 10% and less than 20%. Based upon these definitions every bear market begins as a correction, but not every correction becomes a bear market. As of today, the S&P 500 is not yet even in a correction. To be in a correction it would need to close below 2637.67.

Since June 15, 1948 there have been 11 S&P 500 bear markets and 24 corrections. Excluding the current pullback from the tally there have been 35 declines in excess of 10%. However, the National Bureau of Economic Research has only identified 11 recessions over the same time period. This works out to less than 1 recession for every 3 S&P 500 declines in excess of 10%.

Current market weakness could manifest into a full blown bear market, but economic data, corporate earnings and consumer sentiment would need to deteriorate significantly. Currently forecasts are looking for a slowing in growth as the initial effects of tax cuts and deficit spending wane, but corporate profits are not expected to decline, only slow their pace of growth. A slower pace of gains from the market would likely result.

#$^GSPC #$SPY #$VOO #$SDS #$SSO

Is Cliffhanger Market Just Beginning?

The following is an example of the type of research we provide members of The Lyons Share — on top of daily commentary covering our outlook on the markets and analysis of all the pertinent current charting developments.

Swift corrections from market highs have, at times, marked the beginning of longer-term bear markets.

The recent (ongoing) stock market selloff seems to have blindsided many investors. And perhaps what caught them most off guard was the swiftness of the decline — in particular, given that it was coming directly off of all-time highs in the large-cap averages. Though, we also saw a similarly swift selloff from the January highs, it is relatively rare to see the market sell off this much so soon after hitting new highs.

Specifically, at the lows today (October 26, 2018), the S&P 500 was down more than 10% from its late September all-time high. Going back 60 years, this is just the 13th unique time the index has sold off by at least 10% within 30 days of hitting a multi-year high.

Below are the dates of the occurrences identified by the blue markers on the chart.

If you simply look at the median and % positive returns, it doesn’t strike one as too “scary”. In fact, they are not that far off of normal aggregate returns. However, the risk is asymmetrically skewed. Why do we say that? Because 4 of the prior 12 signals marked precise cyclical market tops. There have only been a handful of cyclical bear markets over this time frame and to have 4 of them marked by these swift corrections from multi-year highs t least gives us pause in assuming the median returns will be necessarily be close to normal, at least in the long-term.

Will the current cliffhanger lead to another cyclical bear market? It remains to be seen. There certainly is enough evidence out there, though, to consider that a legitimate possibility.

If you’re interested in the “all-access” version of our charts and research, we invite you to check out our site, The Lyons Share. FYI, given the current treacherous market landscape, TLS has extended our CRASH SALE through this weekend. So considering the discounted cost and the current treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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#$SPY #$^GSPC #$SH #$SSO #$SDS