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Thursday 7 January 2016

Groundhog Day - Suspended Sentence 2016

A year ago, on the fourth trading day of January 2015 I wrote a post called Suspended Sentence. You can see that post here. In that post I was talking about SPX having lost over 2% in the first three days of January, something that was fairly rare, having only happened eight times in the previous 44 years. Having run the numbers I had determined that if January then closed above the closing print on that third day at 2002.61, then the best case for SPX historically was a flat year. SPX closed under that low and we had a flat year that closed slightly in the red. 

Fast forward a year and this setup is now slightly less rare, having now happened nine times in the last 45 years. The close yesterday was at 1990.26 and if SPX closes under that number at the end of January, then of the six that did that previously the best full year performances were 1% and 3% gains, and the remainder were marginally red last year, then down 10% and 11% on the year, and then an impressive 39% down on the year in 2008. I am expecting, and the odds favor two to one that, January will close out under that 1990.26 so we shall see. 

In the event that SPX can beat that number at the end of January, the three previous examples that managed that all managed excellent years, with the lowest rising 14.75% and the other two rising slightly over 26%. That would be the SPX 'get out of jail free' option and historically that has odds of one in three, though given the overall setup here I'd trim that down to a still overgenerous looking 20%. 

When this stat fixed last year I had numerous comments that the other historical stats for 2015 were all bullish. That didn't save 2015 from going red, and I'd note that the historical stats for presidential election years are mixed at best, with five of the last eight presidential election years closing in the red. On the stats and the overall setup here this is rather unlikely to be a banner year for dip buyers, though next year may well be an entirely different story of course. 

Back to the charts where the very nice rally setup at the close yesterday was torpedoed by more bad news from China. This has very much been a heavy news week, and that may well continue through January. I'm going to use my ES chart first. I post these every morning before the open for theartofchart.net subscribers and that shows the bullish falling wedge at the close yesterday broke down into a perfect falling channel on the China news last night. That falling channel resistance is now in the 1984 ES area and that is the next obvious target from here. ES Mar 60min chart:
On SPX I mentioned yesterday morning that given the setups on RUT and NDX I was doubtful about my SPX falling channel support holding. SPX gapped through it with a vengeance this morning at that means that there are now fixed alternate double top target at 1936 or 1924 SPX. Neither of those targets has been hit yet of course and until they are then they are unfinished business below. SPX 60min chart:
I've been meaning to post the recording of last week's free to all Chart Chat at theartofchart.net, and you can see that posted here. Even by our usual high standards this was a particularly good Chart Chat. We were looking at many indices, forex pairs, commodities, energies and bonds, made some bold calls, and pretty much everything made our targets over the next three days. Well worth a watch IMO. We are expecting a strong rally soon but I'd normally expect to at minimum see that 1936 SPX target made first. 

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