Guest Post: Remember The Can't Lose, First Day Of The Month Trade?

Tyler Durden's picture

Submitted by Peter Tchir of TF Market Advisors

Remember The Can't Lose, First Day Of The Month Trade?

It was big news last year when someone pointed out that 134 out of 143 S&P 500 points came on the first day of the month.  10 of 12 first days of the month in 2010 were positive.  Everyone was chattering about how great it was to go long ahead of the first day of the month.  This culminated in a nice 14 point gain on January 1 after a couple weeks of little movement.  By January 28th, an otherwise down day, the talking heads were kept bouyant by the prospects of big gains to be had the following Tuesday.  The market didn't disappoint and jumped 21 points on the first of February.  In spite of the hype going into March 1st the S&P saw a 21 point sell off.  That move seemed to take the wind out of the sails of that 'easy trade' and although we moved up 7 points on April 1st, On May 2nd we slipped 2 points and today we got slammed 31 points.  Now for the year we are down 12 points in total on the first trading day of the month.  Sadly, by the time my mother heard about on all the financial channels and started trading, she down 48 points.  So much for easy money.

I wish there was more I could say about the market, other than pointing out how poorly the "can't lose" first day of the month trade has performed.  Nothing has really changed.  The data is deteriorating.  The "first derivative" is decidely negative, but, the talking heads only bring out calculus when it is something they can use to talk up the market.  The data is clearly showing little growth and may even be pointing to a slight downturn.  "Fortunately" that is okay as it is temporary because of the supply issues from Japan.  I would be more encouraged about the temporary nature of this pullback if it wasn't coming from people that 2 months ago couldn't help but talk about how bullish the Japanese earthquake was.  Not only did they NOT foresee supply chain issues, they were giddy about the GDP prospects from the rebuilding effort.  For now I will continue to believe that the slowdown is real.  I don't think it's a double dip.  It is more like we are ending remission.  The economy has had cancer and for the past 2 years we have treated it well enough that it appeared to be gone, but it is showing up on our latest MRI's.  A double dip implies we actually got out of the recession/problem.  Remission implies it was always there but the symptons were hidden until the latest fresh outbreak.

Anyways, in the time it took me to type this, there have probably been 2 Greek bailout announcements and a QE3 rumor, and we all know nothing else matters.  Though a prudent investor might be curious why Greek bonds, alledgedly the most directly impacted by any bailout, have had a relatively small bounce.  I saw an article today talking about how the 2 year Greek bonds have rallied for 3 days and broke 25% yields.  Yeah, clear sign that all is good.  Also, the EU ministers seemed to have stepped up the number of times they mention how well Spain is doing.  Doth they protest too much?   

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The Alarmist's picture

Two Words: Spurious Correlation. 

But if enough people buy into it, it has the chance to become a real correlation.

Highrev's picture

Today was a game changer.

Mark my words.


buzzsaw99's picture

The "first derivative" is decidely negative...


Since when!??

skyview's picture

where was Pisani today?



Caviar Emptor's picture

Hyman Minsky, are you seeing all this? 

slewie the pi-rat's picture

most likely, the first day of the month traders were raptured.

Joeman34's picture

No, just spiritually, invisibly raptured.  They will not be physically raptured until October 16, 2011...

IdioTsincracY's picture

Leeches setting the play for QE3.

That's it!!

GeneMarchbanks's picture

Don't know much about this "long-on-the-first-day-of-the-month theory" but anyhow, it seems... irrational, good luck traders.

I just want to take this opportunity to spew my own irrational theory. Here it goes: Someone just got word that Greece will announce a default this week. Hence your sell-off...

Prolly wrong but we'll see.

buzzsaw99's picture

I heard Greece had the Parthenon on ebay.

citta vritti's picture

UK bankers now demanding remaining Parthenon marbles to complete Lord Elgin’s collection

blunderdog's picture

Gawd, who the hell wants that thing?  It's falling apart!

hbjork1's picture! Much too drafty

The Alarmist's picture

Greece, Schmeece ... you can bet that by mid-day tomorrow the ministry of truth will be spinning the sell-off and the rapidly declining economic stats as the result of the uncertainty arising from the failure of Republicans to pass an increase in the debt ceiling.

It's 2008 all over again, and TPTB don't care whose head they have to hold a gun to.


Buckaroo Banzai's picture

First Day of the Month trade: white man's welfare

1st of tha month: the other welfare

BORT's picture

After losing huge amounts of money in the last two big corrections, I get a sense that the retail investors are getting quite gun shy and will take out what they have .  I don't think anyone believes retail are smart investors, but I feel the ones with enough cash to move the market are watching like hawks

Highrev's picture

More likely the bears are still afraid to short.

HistorySquared's picture

Barclay's "Turn of the Month ETN" started trading not long ago and figured it would mark the beginning of the end of the monthly seasonality : 

The Barclays Capital TOM™ Long Index invests in the relevant underlying equity benchmark Index on the close of the 4th business day before each month end and closes this position 3 business days after the same month end. The Long Index is not invested during the rest of the month. The TOM™ Long index is available in price return, excess return and total return versions. The Barclays Capital TOM™ Long Indices are available for Europe, the United States, Japan, Germany and the United Kingdom.  

The Barclays Capital TOM™ Long/Short Index takes a short equity position on the close of the 11th last business day before each month-end and  closes this position on the 5th last business day before month-end. It then takes a long position Index on the close of the 4th last business day before each month end and closes this position 3 business days after the same month end. The long/short index is not invested during the rest of the month. The Barclays Capital TOM™ Long/Short index is available in price return, excess return and total return versions. 

the PTB's picture

Dear Hsquared:



the PTB

AbandonShip's picture

Q: What is Mr. Tchir's mother doing with any equities in her retirement allocation?  She's too old to ride that roller coaster.

I've been urging my father to move his retirements out of equities, too risky for him.  I figure that's my money in about 10 years anyway!

Fidel Sarcastro's picture

Slammed, bitchez!


Highrev's picture




Let's be more specific: BAC, WFC, JPM, C, USB, MS, BK, OUCH!



AldoHux_IV's picture

Outside of the fact that this is just a setup for QE3, 2 analogies come to mind:

1. the economy is actually like brain cancer, but we are treating it like it has a headache and more aspirin will help.

2. the economy is like a junkie and needs to be clean, but we give into it's pleas for more drugs and thus shoot it up some more thinking that this is better than complete withdrawal.

Highrev's picture

I wouldn't be so sure about QE3.

Even Tyler has debunked the possible benefits as not being very "possible". Not even Bernanke believes that there is some sort of positive return hidden in a theoretical QE3. I mean, they've really got to be criminally desperate in order to go down that road . . . okay, well, taken in that light, maybe so.


Rodent Freikorps's picture

Even rats who have seen their buddies die in a trap, still think the cheese is free.

buzzsaw99's picture

the early bird gets the worm but the second mouse gets the cheese.

Rodent Freikorps's picture

I never tried to be the first guy through the door.


prophet's picture

The SPX has been trapped in a four percent range over the last four months excepting the week around the quake.  

Golden cross on weekly (50wma up through 200wma) just this past week.  Gotta go back to 2004 to find that and 1976 before that.  The touch in 1982 was a good signal, the cross in 1976 was not so great but the pressure was light. 

2006 closed out around 1400 and if 2011 does that it will mark five years of action.  2000 started off around 1450.

The monthly ma's are forming a rainbow convergence for the first time since the early eighties. 

This bear between 960 and 1280 with overshoots on both sides still has its wings but it will give way in time.  In the meantime there are plenty of other markets to explore.




A_MacLaren's picture

It works, until it doesn't.

chartcruzer's picture

Its about time someone noticed.   With the exception of a few weeks the the NYSE has been flat for FOUR months.   Market momentum is lost.  Period.   If momentum has been lost with QE in full gear.   Imagine what happens when QE no mas.[s234148398]&disp=P

and the effect of QE et al.[s206018187]&disp=P

sodbuster's picture

Dear Peter,

Please send a check to help out.




jkruffin's picture

Rumor has it the NFP won't even be +50k , and that should create the fastest Wall St crash we have seen to date.

DNB-sore's picture

Bernanky is not the master of puppets, he's just a puppet himself. Watched todays market with disbelief. As Tyler has stated before the smart money has been getting out of stocks. On the other side some less smart mony got in or else it must be Johny 5 that's got smart in levelling markets, maybe pushing them up. If money gets out, the same ammount has to be put in it to level prices.

Waterfallsparkles's picture

I think it has to do with weekly options.  Now every week is an option expiration.  So, Stocks run toward all of the call options at the end of the week and then everyone sells the stocks they got on the weekly options on Monday.

Weekly seems to be a game changer in many ways.

Problem, in my opinion is that the stock is always pinned to options or right between options to sell puts and calls most of the day.  I also think that it has become a BRIBERY Market.  Where who ever buys the most options that is where the price will go.

Want the stock to go up.  Buy a ton of weekly options and you can influence the price.  So, the Street trying to pump prices up for Window Dressing, had to sell all of the shares they got on Expiration.

Well that is my take.

jkruffin's picture

Since Timmy can't sell anymore notes due to being over the debt ceiling, Bernanke can't do a QE3. He has no room to do a QE3, and he has no Treasuries to buy. He has only been buying recent issued notes anyway and now he does not have that luxury. This market ponzi is going to completely collapse very quickly.


As it collapses, let's hope we see treason charges filed on the vermin.

DK Delta's picture

I saw you guys were twittering about QE3. Now, ZeroHedge provides the best alternative information out there for finance/market junkies, but I would just like to point out that you didn't say a word about El-Erian and his statements on NO QE3. That's right, I had multiple arguments over the past two months on this blog about what PIMCO's position was on QE3. All the writers here wrongly pointed to PIMCO's treasury short and drew the incorrect conclusion that it meant they were expecting inflation and more money printing. I wrote once (, and then once again (, that this was ill-concieved and wrong-headed. 

If it were not for ZH's amazing analysis and work I would not have even written these two articles to begin with, but I just want to point out that the inflationary-hyperinflationary consensus that exists on this blog seems a bit extreme and dare I say, fanatical. Do any of you now think that it is possible to have a profitable position short Treasuries on the long end of the curve, with DEFLATION (in money and credit) while still having a rising interest rate environment on the long end (a steepening yield curve)? I hope you now see how this is possible.


El-Erian for the record:

As Chairman Bernanke noted in his August Jackson Hole speech, and reiterated in his first press conference a few weeks ago, policy measures should be judged in terms of the expected balance of benefits, costs and risks.

I suspect that there is now broad agreement that, in the case of QE3, this balance has shifted: lowering the potential gains and increasing the probability of collateral damage and adverse unintended consequences.

With structural impairments limiting the efficient absorption of stimulus in the US, liquidity injections lead to surges in capital flows to other countries. In addition to weakening the dollar, such surges complicate economic management in the rest of the world. They fuel inflation and credit bubbles, and force countries to counter with monetary policy tightening.

Put all this together and the conclusion is clear: It is unlikely that there will be a QE3; and if there is, more time will be spent dealing with the costs and risks, as opposed to the benefits.

user2011's picture

I thought they would have waited for a day or two before they pull the rug. It was because they had only lowered the margin requirement less than 24 hours ago.     Not every sheep were onboard yet.

Well, on the other hand, the market did hang around for a bit before they pull the rug.   I guess it could be enough time for people to bet their limits on the up.

If they had not lower the margin requirement,  I guess the market won't fall this much today.

Anyway, I won't be surprised to see the market trigger the halt within the next two weeks.  

Get your parachute ready,  it is far from the bottom from here.


chump666's picture

As for QE3, it's going to have to be double QE2. Markets have a huge liquidity crunch coming.  These are not hedged markets, just over-spec buying. everyone was bullish on the greek rumor and the market went south, bulltrap was forming in Asian trading day before.

QE3 will have to be the biggest yet

Orly's picture

I see you scored.


chump666's picture

Yes, it was tight trade.  Writing was on the wall re: Asia, thin trades, overbidding, weird contrarian trades.

check margin hikes (good that ZH is mentioning this) esp on oil and also OPEC increases. Kinda a bearish signal on risk trades stocks/fX

Racer's picture

The new first of the month  ramp now appears overnight... on easy volume...instead of tough during the day stuff

CrashisOptimistic's picture

Here's the thing about "transitory".

Everybody knows about it, whatever it is.  Whatever reasons there are to think something is temporary, that is understood by the markets.  Oil has been north of $90 for about 6 months now, and franky, even pre Libya it was clear there was scarcity.

And so, it is not clear just what it is they think will undo the alleged transitory nature of oil's deadly drain.

Downtoolong's picture

 "Past experience is no guarantee of future performance". You really have to hand it to the soft shoe investment banker who first slipped this disclaimer into the fine print.  It must be the most understated truth in the entire history of the markets. I’ve been saying for three years we should have it replaced with something more forthright and appropriate for contemporary times. Maybe something  like, “More shit is likely to happen in the next decade than we’ve seen for six generations. But, why worry about that, the long term is now three weeks.”

topcallingtroll's picture

I still maintain my intermediate topcall on risk assets including gold and silver. Greece and our debt ceiling should be nonevents this summer.

I am still counting.on deflation until bennie quits paying interest on excess reserves. That is as close as we get to qe3.