Today’s analysis is simple and involves two exponential moving averages, the 13 and 23 day lines on the daily chart.  The signal we’re looking for are crossovers of the 13 day average either up through the 23 (bullish) or down through it (bearish).   The chart shows the wonderful signals this indicator has produced.

We sit on the cusp of a bearish cross right now.  What will your next move be?  The odds say go to a safe haven vehicle like cash or bonds for now to preserve your capital.

Good luck!

After a huge pullback late spring and through most of the summer, the S&P 500 staged an incredible rally in the month of October.

Then, the past couple of weeks has brought an increase in volatility as more bad news emerged out of Europe, specifically Greece and Italy.  The DOW lost 400 points earlier this week. Bears were salivating…

However, Government shakeups happened in those two countries and Italy has accepted an austerity package.

Notice below how this is shaking out on the chart.

The October rally represents the dominant trend.  The recent volatility has formed a symmetrical triangle consolidation pattern.  Although symmetrical triangles can break in either direction, they are usually continuation patterns of the dominant trend.  The dominant trend is up.  Also notice we’re currently above the 50 and 200 day moving averages, and also the 13 day EMA. These are all very bullish signals.

I look for run to S&P 1370 by year’s end unless something horrible happens in Europe between now and then.

Also, remember there are lots and lots of fund managers that have bonus money riding on end of the year rallies.

On Friday’s session the SPY (S&P 500 SPDR) closed in the top quartile of its daily trading range on the third consecutive session (to be exact: on Wednesday, November 2, it missed the top quartile only by a fraction, but not affecting respective probabilities and odds). Historically a close in the top quartile of the daily trading range three days in a row right at the start of a month (either the first three sessions of a month or the second to fourth session) provided a remarkable downside edge over the course of the then following four sessions.

Table I below shows all historical occurrences, the SPY’s performance over the course of the then following 1, 2 and 4 sessions and the number of sessions until the SPY managed at least one higher | lower close (if any) in the event the SPY closed in the top quartile of the daily trading range three days in a row right at the start of a month (either on the first three sessions of a month or on the second to fourth session).

It is remarkable to note that whenever that setup had been triggered in the past, the SPY posted a least one lower close over the course of the then following four sessions (in this event until Thursday, November 10) on 29 out of 30 occurrences (thereof the last 21) or 96.67% of the time (while it never managed at least one higher close on 9 occurrences), a significantly downside edge over the 68.40% random chance for at least one lower close during a four sessions time frame. In addition, the SPY never posted a 1.0%+ gain the next day on any of those 30 occurrences, and even two and four sessions later 1.0%+ moves on the downside outnumbered 1.0% moves on the upside by a wide margin (6 : 1 and 7 : 2 respectively).

Whenever buyers drove prices higher back to the top of their daily trading range on (at least) three consecutive sessions right at the start of a month in the past, buying power had been regularly exhausted at least over the short-term.

With respect to the then following session (in this event on Monday, November 7), the setup shows a t-score vs. chance of -3.42 and a t-score vs. market of -3.66 (significantly above the critical +/- 1.645 level), indicating that there is a very low probability that the downside edge occurred by pure chance only.

Successful trading,

Frank

Tweet

Disclosure: No position in the securities mentioned in this post at time of writing.

________________________________

Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

________________________________

Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

________________________________

A second setup triggered on the close of October 31, 2011, caught my eye today.

The S&P 500 closed out the month of October with an impressive 10.77% gain, but was still down -0.35% year-to-date due to a weak final session of October. The table below shows all historical occurrences and the S&P 500′s performance over the course of the then following 1 to 5 sessions (equals business days 1 to 5 in November) in the event the S&P 500 closed out the month of October with a gain (anything better than zero), but was still down year-to-date on that final session of October in the past.

The same (see SPX Down on 1st Session in NOV) bullish picture again. Since 1930, the S&P 500 closed at a higher level 3 and 5 sessions later (in this event on Thursday, November 3 and Monday, Novemer 7) on all 10 out of 10 occurrences, at the same time up 1.0%+ five sessions later on 7 out of those 10 occurrences. Although 10 occurrences only is again nothing to read anything statistically significant into it, the repeatedly positive weighting is quite impressive again, further supporting the bullish case over the course of the next couple of sessions …

Successful trading,

Frank

Tweet

Disclosure: No position in the securities mentioned in this post at time of writing.

________________________________

Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

________________________________

Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

________________________________