Follow @MrTopStep and @BretKenwell on Twitter and please share if you find our work valuable.
Our View
There was a big rip and dip from late Friday to this morning, and I have to tell you I am not the slightest surprised by the drop. The main reasons are just two very important things.
The first is that the S&P cash closed at 3839.50 and the ES is 28.50 over the cash — fair value is 22.17 or 6.20 points over fair value. However, at 3900 in the ES (the Globex high), the ES is 60.50 points above where the S&P cash closed. The second part of the 34-handle gap up. When the ES is trading at a 60-point premium to the S&P cash, the sellers/algos and gap trading systems come flying to take advantage of the gap up.
You don't see things like that very often, but this is something you should stick into your trading tool box.
Our Lean — Danny’s Take
After four straight down weeks, the odds do tend to favor a rally. That said, the trend has not been very favorable for the bulls and just because we’re flipping the calendar doesn’t mean the trend has flipped yet.
I want you all to “meet” my good friend Rich — AKA @Handelstats — as we will be incorporating his stats and info into the newsletter on a much more frequent basis this year. You may also remember him from the interview we conducted earlier this year.
I asked him about January and what the stats say and here’s what he came up with.
You’ll notice that since 1970, the S&P 500 has enjoyed an “up month” 56.6% of the time. However, that has not been the case over the last 15 years. Since 2008, the S&P 500 has actually declined 60% of the time, posting just 6 wins and 9 losses for the month of January over the last 15 years.
The Santa Claus Rally is defined as the last five trading days of December and the first two trading days of January. So far, the SPX is up about 0.4% with just two sessions left to go. January also tends to be quite strong in pre-election years.
That all said, Our Lean