jpcavin's Account Talk

[TSP-roulette]

No offense jken, shoulda' seen that coming. Regardless, all info offered is much appreciated.

 

[userque]

How successful is the Almanac Trader?

I don't use it. But I like seeing the stats.

There are so many different stats in the almanac, the first question to answer is, to which stat are you referring?

 

[Skorcher]

The explanation for the 8th year effect could be that people are sick and tired of whoever's president by the time he completes his 7th year in office. These feelings then affect the stock market.

 

[userque]

The explanation for the 8th year effect could be that people are sick and tired of whoever's president by the time he completes his 7th year in office. These feelings then affect the stock market.

Plausible...as they say on Mythbusters.

 

[jpcavin]

The explanation for the 8th year effect could be that people are sick and tired of whoever's president by the time he completes his 7th year in office. These feelings then affect the stock market.

DJIA was positive at the end of Reagan's presidency. Not sure that theory holds. :blink:

 

[userque]

DJIA was positive at the end of Reagan's presidency. Not sure that theory holds. :blink:

True, very few things in life are 100. Sometimes "a majority of the time," or "most of the time," or "better than half the time," will have to do, especially when it comes to trading. :smile:

In fact (unfortunately), I've never heard of a trading system that was right 100% of the time.

 

[jpcavin]

How successful is the Almanac Trader?

This might be of interest to you if you want to delve more into Probabilities Trading... Probabilities Fund

 

[Cactus]

DJIA was positive at the end of Reagan's presidency. Not sure that theory holds. :blink:

President Obama is no Ronald Reagan. You have to remember that the whole reason Bush Senior got elected is because people wanted 4 more years of Reagan even though they didn't get it.

 

[jpcavin]

President Obama is no Ronald Reagan. You have to remember that the whole reason Bush Senior got elected is because people wanted 4 more years of Reagan even though they didn't get it.

Yeah, no kidding! I'm just trying to make sense of the data. So if people like the outgoing president, they are hopeful that the next president is going to be a good president too and the market does well? And if they don't like the outgoing president, they are fearful that the incoming president is going to be just as bad or worse so the market does bad? What does DOOM predict for the markets in 2016? :laugh:

 

[jpcavin]

Almanac Trader

Early morning market strength quickly faded 'yesterday' and the day finished moderately in the red. DJIA, S&P 500 and NASDAQ are all still above their respective 50-day moving averages while Stochastic, relative strength and MACD indicators are all positive. Despite today’s losses the market is continuing to hold its early October gains amid a healthy amount of investor skepticism. In the following chart of AAII Investor Sentiment versus the S&P 500 you can see that bulls and bears are about even around 30%. This is effectively a neutral reading that suggests there is some cash on the sidelines waiting to be deployed. Since August’s lows have held, the longer-term trend is still bullish and that is the likely direction the market will go this fourth quarter.

 

[jpcavin]

Almanac Trader

DJIA, S&P 500 and NASDAQ have bullishly traced out and completed the “W” or “1-2-3” swing bottom pattern we first started looking for at the end of September. DJIA and S&P 500 have climbed above their respective mid-September highs by the widest margin. As of today’s close, NASDAQ has managed to close above its mid-September closing high on a couple of occasions, but has yet to exceed its intra-day September high.

However, one potential area of concern, which has been cited by other sources as well, is the laggard, nearly dismal performance of small-cap stocks recently. Small-cap performance, measured by the Russell 2000, has been lacking and it was lacking today as the index mustered only half the gains of either DJIA or S&P 500. At the moment, this laggard performance is not without precedent and not really as big of a deal as some may think. In fact, if you were to review page 110 of the Stock Trader’s Almanac 2015, you would find it is actually quite normal for small-caps to be lagging large-caps at this time of year. This laggard performance by small-caps typically starts in mid-September and lasts until late-November or mid-December when the “January Effect” usually begins to take hold. So even absent small-cap participation, large-caps can continue to rally.

 

[jpcavin]

Almanac Trader

Market clears critical juncture ahead of Halloween Indicator

At the beginning of September I shared a rather ominous perspective in this space from my good friend and astute market analyst Dan Turov. Dan was concerned at the time that a bear market might be underway. His morning missive today highlighted the importance of logging gains today. Clearing that obstacle today gives greater comfort to our bullish outlook for the rest of the year and Q1 2016 and supports our October 5 Best Six Months Seasonal MACD Buy Signal. See the charts above and below.
Late last night in his Turov on Timing for today, Dan said: “Today is critical. While the news-neutral daily model is bearish today, the after-the-close news yesterday was anything but news-neutral. Both Google and Amazon both reported sterling earnings and both stocks popped up by more than 10%. Futures are up about a dozen points. If the market can hold its gain during the trading session today and close higher, then the odds improve that the August and early September selloff is not the harbinger of a major selloff. On the other hand, if the market cannot hold its gain and it moves lower, then the rally is in deep trouble. The Intermediate Term Model is bearish but an advance as of the close today would put that signal in danger.”
I have been seeing more folks jumping on the market seasonality bandwagon in recent years and months, which is nice confirmation of what we have been espousing for decades. Our Best Six Months Switching Strategy is now often referred to as the Halloween Indicator. But if you wait until October 31 you often miss a sizeable move as you would have this year. Some years it pays to wait until we get technical confirmation after October 31. Using MACD in conjunction with our Best Six Months Strategy has beaten the pants off the straight calendar Halloween Indicator.
It’s all documented in the Stock Trader’s Almanac 2016 on page 54 or on our website under Our Strategy.

 

[jpcavin]

Almanac Trader

What November & December could look like following big October gains

First at hat tip to Sam Stovall at S&P Capital IQ for a nice research piece, released earlier today, titled “Stealing from Santa” which looked at big October S&P 500 gains. As its title suggests, past October S&P 500 gains in excess of 7% did tend to proceed below average gains in the November-December timeframe. Digging into our own database we found Sam’s research to be spot on. Since 1950, there have been just five previous Octobers where the S&P 500 was up 8% or more on the 17th trading day of the month; 1974, 1975, 1982, 2002 and 2011. By month end, 1974, 1982, 2002 and 2011 were still above 8% and were joined by 1998 and November and December combined produced a below average 1.9% gain.
In the following chart the 30 trading days before and 60 trading days after the first trading day in November following full-month October S&P 500 gains of 8% or more have been plotted. 20 Trading days before “0” day is approximately the end of September. 21 Trading days to the right of “0” is approximately the end of November and 42 trading days is approximately the end of December.

Following October’s massive move, it is not surprising to see a tepid November as gains are consolidated and some profits taken. However, around the middle of December (approximately 9-11 trading days on December calendar) the market found support and briskly rallied to close out the year. Buying the mid-December low (trading days 30-32 on the chart) and holding into early January (trading days 45-47 on chart or 3-5 on January calendar) saw an average move of around 7%.

 

[jpcavin]

Almanac Trader

November, substantially weaker in pre-election years

November maintains its status among the top performing months as fourth-quarter cash inflows from institutions drive November to lead the best consecutive three-month span November-January. The month has taken hits during bear markets and November 2000, down –22.9% (undecided election and a nascent bear), was NASDAQ’s second worst month on record—only October 1987 was worse.
November begins the “Best Six Months” for the DJIA and S&P 500, and the “Best Eight Months” for NASDAQ. Small caps come into favor during November, but don’t really take off until the last two weeks of the year. November is the number-three DJIA and number-two S&P 500 month since 1950. Since 1971, November ranks third for NASDAQ. November is now the number one month for Russell 1000 and second best for Russell 2000 since 1979.
In pre-election years, November’s performance is substantially weaker. DJIA has advanced in only half of the last 16 pre-election years since 1950 with an average gain of 0.3%. S&P 500 has been up in 9 of the past 16 pre-election years, also gaining on average a paltry 0.3%. Small-caps and techs perform better with Russell 2000 climbing in 5 of the past 9 pre-election years, averaging 1.0%. NASDAQ has been up in 6 of the last 11 pre-election year Novembers with an average 0.9% gain. Contributing to pre-election year November’s weaker performance is nasty declines in 1987, 1991 and 2007

 

[jpcavin]

Almanac Trader

Why a March 2016 Fed rate hike is more likely

Back in September, when the Fed last meet and released a Summary of Economic Projections, we correctly guessed that they would take no action. International developments, a decelerating labor market and falling inflation at that time all suggested the Fed would take another timeout.
Yesterday's Fed statement seems to only have added further confusion to an already murky rate outlook. Economic activity that was cited as “expanding” in September is now being referenced to in the present perfect progressive tense, “has been expanding.” The tense defines an action that began in the past, continues in the present and may continue into the future. It would seem that (future) economic growth is on shaky ground. Yesterday's update to the Federal Reserve Bank of Atlanta GDPNow forecast for the third quarter is now a whopping 1.1%. This is an improvement from the 0.8% it was before yesterday's international trade report, but still far below overheating.

Although economic growth is not a direct mandate for the Fed, its tepid pace has trickled over to the labor market where the recent trend in payroll gains has slipped markedly. Total gains in payrolls in August and September both came in light and well off the recent streak of 200k-plus. Next Friday’s October report will either confirm recent weakness or mark a turnaround.

Inflation, actual and expectations, is another issue for the Fed. Year-over-year, seasonally adjusted CPI has been between 0.2% and –0.2% since January 2015. This is well below the Fed’s 2% target and the nine-month streak is weighing on future inflation expectations. Back in January, it was energy’s fault. Crude oil had plunged from over $100 per barrel to around $45 per barrel. And somehow, its recent slip from $60 back to $45 is being cited as a main driver for sinking inflation now. It would seem there is much more going on than just the decline in energy prices.

Yesterday's Fed statement also included a direct (or seemingly so) reference to its December meeting. The words “how long to maintain this target range” in the September statement were replaced with “whether it will be appropriate to raise the target range at its next meeting” in yesterday’s release. Is the Fed suggesting they are ready to go in December or are they merely making it clear that they could go at any future meeting? Given the Fed’s history, it is most likely the Fed making it clear that they intend to move rates higher, but not necessarily in December. What are the odds of an unscheduled November meeting rate hike?

Why not December or January? Too much data still suggests the U.S and global economies are still in a “soft patch.” A move in December also has the potential of upsetting yearend transactions and settlements. A January move seems premature as well as fourth quarter and full-year 2015 data will still be in the preliminary stage. This leads us to a March 2016 move. By then there should be sufficient data to support a rate increase or not. March is also well ahead of the presidential election in November which would effectively null and void any political arguments for or against a move.

In the end it is all just a guess as there is no way to be certain where the U.S. or global economy will be two or five months from today.

 

[jpcavin]

Almanac Trader
Late-day smart-money rally bodes well for stocks

The market spent most of the day in the red until it rallied in typical fashion in the last hour to move into positive territory before closing fractionally in the red, down less than a point on the S&P 500. One of the most consistent market patterns we track in the Almanac and use when exiting or entering positions is the intraday market patterns.
Despite the prevalence of high-frequency, program and algorithmic trading, the market’s intraday pattern, which is driven by the collective behavior and daily routines of all the individual participants, continues to persist. As illustrated in the chart below from page 139 of the 2016 Almanac, you can see the so called “dumb” money which often comes in scared in the morning and selling, then a rally until the lunchbreak pause, a post-lunch rally, the afternoon coffee run selling and then a rally to the close with “smart” money buying.
This late-date rally today, while not resulting in a positive day, is emblematic of the market’s underlying strength. However, after expected turn-of-the-month bullishness as illustrated on our November and October Strategy Calendars, a minor pullback after the banner October gains this year is to be expected.

 

[jpcavin]

Almanac Trader

Six ways to the “Best” day of the year

What are the best days of the year for the market? This seems to be a relatively easy question to answer at first blush. But, how do you exactly define “best?” Are you looking for the days with the best average percent gain, the days with best frequency of gains or the days that have a combination of solid average gains and a high frequency? Then there is the issue of our calendar. October 30 was a trading day this year, but it was not a trading day in 2011. However, today was the last trading day of October and every year has a last trading day, regardless of actual calendar date. In the following four tables we look at all of the possible definitions (that we thought of) for “best” day and present the Top 5 days for the S&P 500 over the past 21 years, 1994-2014, and past 65 years, 1950-2014.

The next two tables calculate results using trading day of the month for each month of the year. This method is the same process used to calculate our Probability Calendars located on pages 121 to 128 of the Stock Trader’s Almanac. This method ensures there is always the same number of first trading days, second trading days, third trading days, etc., in each month.

These next two tables calculate results strictly based upon calendar date. Leap year February 29 was included in the data. Beginning with Jan 2, every Jan 2 in the data set was examined, then Jan 3 and so on and then the data was sorted to reveal the Top 5 dates by frequency of gains, by average gain and then a combination of frequency and average.

The appearance of dates in October throughout these tables is not much of a surprise. The month does have a rather consistent history of volatility. Volatility is often associated with big down days, but more often than not big down days will be followed by big up days. November and December also appear throughout. The day after Christmas is notably bullish with both a high frequency of gains and a solid average gain over the past 65 years.

 

[jkenjohnson]

Thought you might be interested in this.

This very day will decide whether you

 

[jpcavin]

Almanac Trader

0.34% average gain in November-December following October S&P 500 gains of 5% or more since 1930

Following a few inquiries regarding S&P 500 October gains of 5% or more over the past few days, we present the following table with closing prices and stats. As it turns out, the most recent five times (shaded in grey) when the S&P 500 was up 5% or more in October were followed by an average November-December gain of 5.04%. However taking a longer-term view paints a slightly less optimistic picture. Going back to 1930, and increasing the dataset to 16 occurrences, reveals an average November-December gain of just 0.34%. Narrowing the data range to 1950 to present and the average improves modestly to 2.48%.

Bummer.

 

[ravensfan]

Thanks JP! Looks like a good reason to remain invested for the remainder of the year...