Friday, March 30, 2012

Tom McClellan: S&P 500 - First day of the month tendency


I did a study recently, looking at the behavior of the SP500 on the first trading day of a new calendar month.  It has long been said that pension fund flows and automatic mutual fund investments for 401Ks, etc. tend to put a positive bias on the last few days of the month and the first few days of the new month.

What I found is a strong positive bias in recent years for the first day of the month to be an up day.  The last day of the month and the second day of the month do not show that same effect.

The first chart shows an “equity curve” of the first day of the month versus the rest of the month.  It assumes you “buy” the SP500 at the close on the last day of the month, and then sell it at the close on the first day of the month, thereby capturing the price change on just that first day.  The Rest Of The Month line does the opposite.  Since this is just a study, and not a real trading system analysis, no allowance is made for commissions, slippage, or money market interest.  It makes a pretty strong argument for the first day having a decent positive tendency.

Interestingly, this phenomenon is a fairly recent development.  The second chart shows a longer view of the same idea, this time on log scale, and the First Day equity curve is pretty flat through the 70s and 80s.  It really only starts to slope upward around 1997, implying that the first day effect was not really prevalent before then.

When I included the last day of the month into the mix, and also the second day of the month, they did not make the results better and in fact they hurt the performance of the First Day equity curve.  A comparison of the 3 methods’ results is shown in the third chart. 

Does that mean Monday will be an up day?  Not necessarily, of course, but given the recent odds I would not want to bet against it.

Tom McClellan: 9-Month Cycle


Chart In Focus
July 22, 2011


The 9-month cycle in the stock market used to be a very regular and important factor governing stock price movements.  But recent changes in the rules and structures of the markets may have made this cycle go the way of Saturday trading and paper stock certificates.  Or perhaps it has just changed itself into a new form.  Let's take a look.


My lead chart this week highlights what I am talking about.  Before 2007, there were important bottoms about every 185 trading days.  Cycles analysts for years have called this the "9-month cycle", or the "40-week cycle", even though the precise period was a little bit shorter than those numbers.  Big round numbers are easier to say, which is why those names were used.
In addition to the major cycle lows every 185 trading days, there was also a significant mid-cycle low that would appear somewhere in between the major bottoms.  The mid-cycle low was usually not as punctual, and could arrive early or late, even as the major cycle low would tend to be more on time.  This mid-cycle low was a "harmonic" of the frequency of the major cycle low, meaning that they were even multiples of each other.  Harmonic frequencies are a big deal for mechanical engineers dealing with solid structures, but they also show up in other arenas like the stock market.


Starting in 2007, this all changed, as delineated by the red vertical line.  It was hard to understand this change as it was occurring at the time, but easier to see now that we have the luxury of looking back at the historical data.  What appears to have happened beginning in 2007 was that the length of this cycle contracted dramatically, for both the major cycle and the mid-cycle periods.


One of the reasons why it was so difficult to understand this change in period as it was occurring in real time is because of another trait of this cycle, which is known as a "phase shift".  In my historical research, I have identified the 9-month cycle as working on the stock market all the way back into the 1960s, although curiously not so much before then.  One of the more interesting behaviors of this cycle over that time period is that about every 6-8 years, the 9-month cycle would seem to skip a beat, and then start up again on some new schedule.  Here is a great example of this behavior:


Flashback to 2002-06 and the 9-month cycle


In the lower portion of this chart, there is a modified sine wave pattern to help visualize the behavior of the cycle in the SP500's price movements.  The market was following this cycle pattern very nicely up until late 2005, and then it jumped onto a new schedule that just happened to be about a half cycle length off of the original schedule.


So with the knowledge that a phase shift was a possibility with this cycle, it was hard to understand what was happening in early 2008.  And this illustrates one of the big pitfalls with doing any sort of cycle analysis: cycles can change, and so while they may give us nice predictions of what should happen at some point in the future, there is no guarantee that the past behavior will remain in effect in the future.


It just so happens that 2007 was when this cycle changed, and it was also the year that the uptick rule for shorting stocks went away.  It is hard to understand why a rule change like this could make a difference on a market cycle, but I have an explanation that may help.


Imagine a wave pool in a laboratory, where scientists create waves to study how they travel through the water.  Now imagine that you remove all of the water, and replace it with 30-weight motor oil.  Because the oil is lighter but more viscous than the water, the behavior of waves in that wave pool would understandably be different.


So thinking of the financial markets, if the regulators were to do something that changes the "viscosity of money", making it flow more or less easily, then we would likely see changes in the way that waves propagate through that medium as well.  Such changes might include restrictions on shorting stocks, the advent of money market funds, the introduction of stock index futures and options, leveraged ETFs, etc.  All of these affect the ease with which money can flow into and through the stock market.


Now, if you look back at the top chart, you can see that the blue numbers are getting bigger again lately.  Those numbers represent the time period between the major lows of this cycle (formerly known as 9-month).  The lowest number was 159 trading days in early 2008, and it has climbed back all the way up to 177 as of the latest major cycle price low.  It may be that after the initial shock, this cycle is working on getting back up to is "natural" frequency.  Or it may be that 159 and 177 are just the widest extremes of a new range of cycle periods that average more like 168 trading days, and that this is the new natural frequency.  We won't know for sure for several more cycles' worth of time, and that's the big problem with this analytical technique.


For what it's worth, and to help your planning, 159 to 177 trading days from the most recent major cycle low equates to a timeframe of Oct. 31 to Nov. 25, 2011.






Advanced GET's Cycle-tool suggests this was the 9 Month Cycle crest. However, the tool is not adjusted according to Tom McClellan's findings.

Wednesday, March 28, 2012

All Planets vs SPX - Evaluation of Strength & Time



Based on price history of the S&P 500 from 03.01.1950 09:30 TimingSolution chose the strongest planetary composites and evaluated the frequency of planet's presence in different composites and lists the planets according to their activity. The most active planet is the Moon.  Planets ranked by importance:

Moon 14 points
Mercury 14 points
Venus 14 points
Mars 14 points
Jupiter 14 points
Sun 12 points
Saturn 12 points
North Node 11 points
Neptune 10 points
Pluto 10 points
Uranus 9 points
  • Following diagrams show the effect of the angle between the planets on trend. Different curves of different colors represent composite diagram for different independent intervals.
  • Red stripes (on the bottom part of diagram) show the regions where the influence of the planetary factor is strong. These regions are called "Predictable Zones". Grey stripes show the regions where the connection between the price and the planetary factor is not so obvious. We recommend to use red zones for prediction (as the results there are more predictable). 

Planetary Phase:




The most predictable zones are:
00° AR - 29°46' CANC
05°02' AQ - 0° AR




The most predictable zones are:
00° AR - 17°46' TA
00°29' GEM - 04°34' LIB
09°50' LIB - 01°55' SAG
12°14' AQ - 0° AR

The most predictable zones are:
10°05' CANC - 02°10' VIR
02°38' LIB - 28°19' SC
17°02' CAPR - 0° AR

The most predictable zones are:
00° AR - 18°58' CANC
02°38' LIB - 05°31' SAG
14°38' SAG - 03°07' AQ
23°02' AQ - 0° AR


The most predictable zones are:
00° AR - 14°10' TA
07°41' GEM - 27°22' VIR








































   

   

Geo Longitude Positions:

































  


ITD Delta Pattern & Solar Forecast & EAR - MAR Cycle = Low April 3-6