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Almanac Trader

I am the editor of the Stock Trader's Almanac & Almanac Investor Newsletter and a Research Consultant at Probabilities Fund Management, LLC. I use historical patterns and market seasonality in conjunction with fundamental and technical analysis...

jeffhirsch 6:19 PM Mar 24, 2017 at 6:19 PM

Health Care Bill Failure Turns Trump Rally Into Sausage

“Laws are like sausages, it’s better not to see them being made,” as the oft misattributed maxim goes. While this is a blow to the Trump administration and the Republican controlled Congress, it’s probably not as bad as the 24/7 sensationalized news media wants to make it. It’s definitely a set back and it did turn the market down when it was announced that after consulting with the President, Speaker Ryan was pulling the bill as it did not have the votes to pass. 

Hey, law making is a messy business, deal with it. They will just have to go back to the drawing board or caucus and try again or not. And in the meantime move on to the rest of the agenda. As we stated in our 2017 Annual Forecast, “We give base case a 65% chance as he does not appear to have enough congressional support to slam through all that he campaigned on, further rationale for more compromise and less actually delivered.”

Meanwhile, the end of March has a history of volatility and end-of-Q1 market weakness. This recent selloff has come a bit early and is steeper than average, but not catastrophic. As you can see in the chart below of the 21-year typical seasonal pattern 2017 was tracking quite closely until the infamous Ides of March when the health care bill ran into stiff opposition.

Smartest thing Trump, Ryan and the republicans can do right now is shelve this health care business and move on to the other policy items that have a better chance of making a difference and getting more support like infrastructure spending. Get that through and implemented and then go back to the harder sells.

In any event this sets up another leg up during the final month of our Best Six Months. From the March 1 high the S&P 500 is down a whopping 2.2% at today’s close. Let’s not lose our heads and start calling for a market crash. We will stick to the drill and wait for our indicators to tell us when to go on the defensive.

On an encouraging note our good friend and crack market timer Dan Turov notified subscribers today that his, “Intermediate Term Model has upticked from bearish to bullish.  This does not mean the bull market is without risk. It does mean that the odds favor the next 50 point move in the SPX is more likely to be up to about 2400 than down to 2300.” Dan’s Turov On Timing service is invaluable to us and we recommend you check it out.

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jeffhirsch 4:49 PM Mar 23, 2017 at 4:49 PM

“Worst Six Months” May Halt Trump Rally

From our Seasonal MACD Buy Signal on October 24, 2016 through yesterday’s close, DJIA gained 13.4%, S&P 500 climbed 9.2% while NASDAQ was up 9.6%. At their respective high closes on March 1, 2017, DJIA was up nearly 16% and S&P 500 and NASDAQ were up over 11%. Either at yesterday’s close or the highs, this performance is above long-term averages. 

The long-term track record of our Seasonal Switching Strategy, which is based upon the “Best Six Months”, has a solid track record of outperformance with potentially less risk compared to a buy and hold approach. Since 1950, DJIA’s average annual gain has been 8.3%. Over the same time period, DJIA has lost an average 1.1% during the “Worst Six Months,” May through October, and gained an average 9.2% during the “Best Six Months,” November through April. 

Detractors are quick to point out that there have been positive “bad” months and negative “good” months. This is absolutely true as there is no trading or investment strategy that works 100% of the time (even the best will report a trading loss every once and a while). In post-election years, the worst performing year of the four-year cycle (page 130, STA17), there have been some nasty selloffs. Most recently in 2001 when DJIA fell 17.3%, S&P 500 dropped 15.6% and NASDAQ plunged 31.1% during the worst months. Barring another “once-in-a-generation” bear market and financial crisis, the double-digit gains of 2009 are not highly likely this year. And with the Fed clearly in a tightening cycle, a repeat of 2013’s quantitative easing fueled gains are also unlikely.

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jeffhirsch 2:37 PM Mar 22, 2017 at 2:37 PM

April is gold’s fourth worst performing month

Based upon continuously-linked, non-adjusted, front-month futures prices since 1975, April is the fourth worst performing month for gold and fifth worst for silver. In 42 years, gold and silver have advanced 18 times and declined 24 times in April. Gold has posted an average loss of 0.4% while silver actually recorded an average gain of 0.5%. Silver’s better average performance can be attributed to mighty gains of 15.2% in 2016, 28.3% in 2011, 18.3% in 2006 and 29.9% in April 1987. Gold and silver’s record over the recent 21 years (1996-2016) is better, but performance in April is still tepid. Gold up 12, down 9 average gain 0.4% in last 21 years while silver was up 8, down 13 with an average gain of 0.3%. Typical April performance can be seen in the following chart. Note weakness ahead of the eleventh trading (approximately tax deadline).

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jeffhirsch 7:12 PM Mar 21, 2017 at 7:12 PM

S&P 500 Streak w/o a 1% loss ended today - Now what?

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Today the S&P 500 ended its daily streak of trading days without a 1% or greater decline at 109. Since 1950, there are only 9 other S&P 500 streaks of this duration or longer. The longest streak was 184 trading days in 1963. The average gain during the past 9 streaks was 15.16%. S&P 500 fell short of this mark this time at 11.30%. Compared to S&P 500 streaks lasting 89 trading days or longer this list has six fewer and shows additional weakness 3-Months after the streak ended. 

Click here to view table full size…

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The chart below is the average performance of these past 9 streaks 30 trading days before the streak ended and 60 trading days after comparing 79 trading day and longer streaks to 89 day and longer streaks to 109 trading days and longer. Weakness near the end of the chart, 60 trading days is approximately 3 calendar months later. 

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Arguable today’s retreat was overdue. Perhaps it was due to some early end-of-quarter profit taking and portfolio restructuring triggered by President Trump’s slipping approval rating and the possibility that health care reform may not happen as quickly as promised. This potential failure has led to speculation that other Administration major policy changes such as tax cuts and infrastructure spending roll out will be delayed or worse yet, not happen at all. It seems like a stretch at this point to jump to the conclusion that the Trump Administration is not going to have any success. We believe the market is still on track for double-digit full year gains and DJIA could still easily reach 23,000 to 24,000 by yearend.

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jeffhirsch 6:43 PM Mar 20, 2017 at 6:43 PM

Pillars of Market Technical Support & Small Cap MACD Buy

The market’s early March consolidation phase has brought down the excessive bullish sentiment levels we were at back at the new highs on March 1. The chatter of 10% corrections, bear markets and 2000-3000-point DJIA drops has picked up in the last week or so. However, support has held and the Small Caps have even put in a MACD Buy signal, suggesting the Small Cap rally may still have legs.

I have updated the charts from 11-days ago when we warned that the small cap rally was nearing the end. Russell 2000 held right at the 1355 support we highlighted. I have also switched to the faster 8-17-9 MACD Buy indicator instead of the slower 12-26-9 MACD Sell indicator to illustrate the renewed short term strength in the small cap Russell 2000 indicator. But first let’s take a quick look at the S&P 500’s technical picture.

I added the third higher level of support at S&P 2355 at the end-of-February consolidation period that it held last week as illustrated with the light green oval and green arrow in the upper chart pane. However in the lower panes the S&P is still struggling technically to show momentum in the stochastics, relative strength and MACD.

The Russell 2000 on the other hand is showing more momentum and strength since bouncing of the aforementioned 1355 support level last week as illustrated with the light green oval and green arrow in the upper chart pane. In the lower panes you can see the change in momentum to the upside in stochastics and RSI as well as the positive MACD Buy indicator crossover and histogram in the bottom pane.

Both indices and the market as a whole still have some work to do technically, but if these support levels hold and the charts and indicators remain constructive further upside is expected, barring any exogenous events out of Washington DC or elsewhere.

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jeffhirsch 6:13 PM Mar 17, 2017 at 6:13 PM

Positive January Trifecta Pattern Indicates Next Leg Higher Begins in Early April

In the following chart S&P 500 historical average performance has been plotted comparing “All Post-Election Years,” “January Trifecta Positive,” “January Trifecta Positive - Post-Election Year” and 2017 as of today’s close. Thus far, S&P 500 has been tracking “January Trifecta Positive - Post-Election Year” (purple line) rather closely. Even March’s mild downtrend is mirroring the historical pattern. Should S&P 500 continue to track this pattern, then it is likely to begin its next leg higher in early April just as earnings season gets underway in earnest. 

Are you positioned to benefit from the market’s next move? Subscribers to Almanac Investor were prepared for the rally that ensued following last November’s elections. On November 1, 2016, subscribers were alerted that the market was poised to rally regardless of the election outcome and we were already actively expanding long exposure. We issued our Seasonal MACD Buy Signal on October 24, 2016 advising “Buy Dips.” Our late September 2016 Stock Basket led to multiple single stock gains of 30%, 40% and even 50% in the Almanac Investor Stock Portfolio

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*Some fine print:

Hirsch Holdings Offers a pro-rated refund on all cancelled annual subscriptions. Monthly subscribers can cancel at any time. You must remain an active subscriber for 3 billing cycles (monthly subscribers) or 3 months (annual subscribers) or you may be billed up to $50.00 for the Almanac plus $7 for shipping.

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jlfmi 6:58 PM Mar 16, 2017 at 6:58 PM

Small-Caps Vs. Volatility: Who Blinks?

jlfmi:

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Though the Russell 2000 is off its highs, its volatility expectations are hitting 52-week lows; which is correct?


A couple times in recent months (here and here), we have written posts pointing out odd behavior between the S&P 500 and the S&P 500 Volatility Index, a.k.a., the VIX. Since stocks and their related volatility indices typically move in opposite directions, it was odd to see the 2 moving in concert, even if it was just in the very short-term. Each time, we asked the question, “who will blink, the S&P 500 or the VIX?” As it turns out, arguably it was the VIX that blinked both times, eventually reversing course to a more conventional path given the direction of the S&P 500.

Today, we ask a similar question regarding the Russell 2000 Small-Cap Index (RUT), and the Russell 2000 Volatility Index (RVX). The impetus behind the question is the unusual set of circumstances currently present in the two data series. Specifically, The RVX recently closed at a 52-week low while the Russell 2000 was more than 2% off of its recent high.

That may not seem all that extraordinary. However, since the inception of the RVX in 2006, it is just the 6th unique time that the RVX has hit a 52-week low while the RUT was at least 1% below its 52-week high.


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So what is the message being sent here? Judging by the prior events, there appears to be a clear favorite for who is most likely to blink.

To view our “all-access” breakdown of this unusual and telling small-cap phenomenon, subscribe to The Lyons Share.

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Like our charts and research? Get an All-Access pass to our complete macro market analysis, every day, at our new site, The Lyons Share .

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.

Thoughtful instructive post Dana.

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jeffhirsch 6:24 PM Mar 16, 2017 at 6:24 PM

Irish Eyes Smile on Market Last 23 Years, but S&L Crisis Blackens St Patrick’s Day Fridays

Saint Patrick’s Day is the only cultural event that perennially lands in March. Over the years gains the day before Saint Patrick’s Day have proved to be slightly better than the day itself and the day after. Perhaps it’s the anticipation of the patron saint’s holiday that boosts the market and the distraction from the parade down Fifth Avenue that causes equity markets to languish. Perchance it’s the all the green folks don that stirs up thoughts of money and market gains. More likely, it’s the fact that Saint Pat’s usually falls in historically bullish Triple-Witching Week.

Click here for full size table

Whatever the case, since 1950, the S&P 500 posts an average gain of 0.22% on Saint Patrick’s Day (or the next trading day when it falls on a weekend), a gain of 0.14% the day after and the day before averages a 0.25% advance. S&P 500 median values are 0.18% on the day before, 0.23% on Saint Patrick’s Day and 0.07% on the day after.

In the nine years when St. Patrick’s Day falls on a Friday – also Triple Witching Day – like this year, since 1950, the day before (Thursday) produced an average gain of 1.01%; while Friday advanced a paltry average 0.01% and the following Monday suffered an average loss of -0.06%. The 1989 Savings and Loan Crisis impacts Friday Saint Patrick’s Day heavily with Seaman’s Corporation, parent of Seaman’s Bank for Savings of New York, announcing an agreement with the Feds that would prohibit it from paying dividends on common stock shares, knocking the stock down 45% on the day. On the same day the Feds also seized 6 S&Ls in South FLA. S&P 500 was down 2.25% March 17 1989 and 0.95 the following Monday.

However, over the last 23 years market performance on Saint Patrick’s Day and the day after have improved, up 78% of the time on the Holiday with an average gain of 0.69%. Since there is no major financial crisis afoot and March Triple Witching has been more bullish recently, the odds are for market upside tomorrow.

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jeffhirsch 4:31 PM Mar 14, 2017 at 4:31 PM

Solid “Best Six Months” does not improve “Worst Six Months” Prospects

In the above two tables, all above average “Best Six Months” (BSM) periods for DJIA and S&P 500 appear with the subsequent “Worst Six Months” (WSM) lined up in the right side of the table. Any BSW that was greater than 7.5% for DJIA and 7.1% for S&P 500 are included. This resulted in 33 occurrences for each. For DJIA, the subsequent WSM period in this scenario differed little when compared to all 67 years. Its average gain at 0.42% is unchanged and the frequency of losses was also little changed (42.4% compared to 40.3% in all 67 years). S&P 500 however, did see a modest improvement during the WSM. Its average climbed to 3.30% and frequency of declines fell from 37.3% to 27.3%. Overall, an above average BSM period did not have a meaningful impact on WSM performance.

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jeffhirsch 5:32 PM Mar 13, 2017 at 5:32 PM

S&P 500 generally bullish before FOMC Meetings and bearish after

Tomorrow, the FOMC will meet for the second time this year and based upon CME Group’s FedWatch Tool there is a 95.2% chance they will announce a rate increase when the meeting ends on Wednesday, March 15. Should they ultimately raise rates it will be just the third time since December 16, 2015. Going forward with a similar pace and magnitude of increases (one .25 increase in the range every 5 months) it will be another 40 months before the top of the range reaches 3%. Even at that level, rates would still be rather accommodative within historical context. 

In the following chart the 30 trading days before and after the last 72 Fed meetings (back to March 2008) are graphed. There are three lines, “All”, “Up” and “Down.” Up means the S&P 500 finished announcement day with a gain, down it finished with a loss. Down announcement days have generally been the best buying opportunity while up announcement days were more frequently followed by weakness. 

Of the last 72 announcement days, the S&P 500 finished the day positive 43 times. Of these 43 positive days S&P 500 was down 24 times (55.8%) the next day. Of the 29 down announcement days, the following day was down 16 times (55.1%). All 72 announcement days have 0.46% average S&P 500 gains while the day after has been a net loser with S&P 500 shedding 0.32% on average.

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