SPX Closing Out the Year on its Highs

In September I touched briefly on the idea that an unusually strong month generally leads to upside follow-through in the first week of the following month. Back then the criteria for a ‘strong month’ was a 7.5% gain, but considering the S&P500 is currently up 6.6% month-to-date with only one session to go, I reran the same study but reduced the required monthly gain to only 5%. As long as the S&P500 doesn’t lose 1.6% or more on Friday, this month will qualify for inclusion in the table below…

S&P500 Closes Out Month with 5%+ Gain
09/30/10… SPX +1.5% one week later
07/30/10… SPX +1.8% one week later
03/31/10… SPX +1.5% one week later
11/30/09… SPX +0.7% one week later
07/31/09… SPX +2.3% one week later
05/29/09… SPX +2.3% one week later
04/30/09… SPX +4.0% one week later
03/31/09… SPX +2.2% one week later
12/31/03… SPX +1.8% one week later
10/31/03… SPX +0.2% one week later
05/30/03… SPX +2.5% one week later
04/30/03… SPX +1.4% one week later
11/29/02… SPX -2.6%  one week later (*)
10/31/02… SPX +1.9% one week later
11/30/01… SPX +1.7% one week later
04/30/01… SPX +1.1% one week later
08/31/00… SPX -1.5%  one week later (*)
03/31/00… SPX +1.2% one week later
12/31/99… SPX -1.9%  one week later (*)
10/29/99… SPX +0.5% one week later
06/30/99… SPX +1.6% one week later
12/31/98… SPX +3.7% one week later
11/30/98… SPX +2.1% one week later
10/30/98… SPX +3.9% one week later
09/30/98… SPX -4.6%  one week later (*)
02/27/98… SPX +0.6% one week later
09/30/97… SPX +3.8% one week later
07/31/97… SPX -0.3%  one week later (*)
05/30/97… SPX +1.2% one week later
04/30/97… SPX +1.8% one week later

In each of the last 12 occurrences, and in 25 out of the last 30 (83%), the S&P500 gained ground during the first five sessions of the following month. The random chance for a higher S&P five sessions later in the same time frame is only 55%, so this represents a significant edge over random. Barring an outsized loss on Friday, this suggests the market will continue trending higher during the first week of January.

Also noteworthy that the CBOE equity put/call ratio declined for a third consecutive session on Thursday. This too has generally had short-term bullish implications, although accuracy has been spotty recently. Still, it’s noteworthy that downside potential has typically been limited in the three days following a steadily declining put/call ratio. The S&P500 lost 1% or more three sessions later only two times out of the last thirty occurrences, while it gained 1% or more fourteen times…

CBOE Equity Put/Call Ratio Declines Three Days
12/30/10… S&P500
11/04/10… S&P500 -0.6% three sessions later
10/26/10… S&P500 -0.2% three sessions later
10/12/10… S&P500 +0.6% three sessions later
08/02/10… S&P500 -0.0% three sessions later
04/26/10… S&P500 -0.4% three sessions later
03/31/10… S&P500 +1.7% three sessions later
03/02/10… S&P500 +1.8% three sessions later
02/17/10… S&P500 +0.8% three sessions later
02/10/10… S&P500 +2.5% three sessions later
01/08/10… S&P500 +0.1% three sessions later
11/04/09… S&P500 +4.5% three sessions later
08/20/09… S&P500 +2.1% three sessions later
08/05/09… S&P500 +0.4% three sessions later
07/13/09… S&P500 +4.4% three sessions later
04/13/09… S&P500 +0.8% three sessions later
03/10/09… S&P500 +5.1% three sessions later
01/23/09… S&P500 +5.1% three sessions later
12/23/08… S&P500 +0.7% three sessions later
12/17/08… S&P500 -3.6% three sessions later (*)
10/29/08… S&P500 +3.9% three sessions later
08/22/08… S&P500 -0.8% three sessions later
07/18/08… S&P500 +1.7% three sessions later
04/02/08… S&P500 +0.4% three sessions later
03/13/08… S&P500 +1.2% three sessions later
12/28/07… S&P500 -2.1% three sessions later (*)
09/21/07… S&P500 -0.0% three sessions later
08/31/07… S&P500 +0.3% three sessions later
08/17/07… S&P500 +1.3% three sessions later
07/09/07… S&P500 +1.0% three sessions later
06/28/07… S&P500 +1.3% three sessions later

Categories : Archived EOD Commentary, End-of-Day Commentary

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