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Trading The Technicals: Buy The "December Triple Witching" Dip

Tyler Durden's picture




 

The S&P 500 is set to resume higher, according to BofAML's Macneil Curry pointing to the week of December Triple Witching as historically one strongest of the year for the S&P500. With fundamentals a thing-of-the-past, paying attention to the technicals in a world of one driver of stocks (Fed balance sheet), for short-term trading signals may have some value. Of course, with an 'event' as potentially huge as the FOMC meeting this week, adding risk on an already good year (when the world already believes a taper is "priced in") may be more greatest fool than momo monkey.

 

Via BofAML,

S&P500 set to resume higher

The week ahead should take its cue from US equities. This Friday is December Triple Witching (the term used for the quarterly expiry of US equity index futures, options on equity index futures and equity options). Consistently the week of December Triple Witching is one strongest of the year for the S&P500. In the 31 years since the creation of equity index futures, the S&P500 has risen 74% of the time during this week. More recently, it has risen in ten of the past 12 years. With equity volatility fast approaching a buy signal, the conditions are growing ripe for an end to the month long range trade and resumption of the larger bull trend (we target 1840/1850 into year-end). This should be bearish for US Treasuries with 10s targeting 2.95%/3.00% and 5s targeting 1.67%/1.69% (we are short TYH4). From an FX perspective, this environment should be bullish for the US $. We continue to look for a €/$ top and recommend sticking with $/¥ longs for 104.60/105.00. 

Chart of the week: The week of December Triple Witching 

 

The S&P500 historically performs very well during the week of December Triple Witching. Since 1982, it has averaged a rise of .63% and risen 74% percent of the time. To put this in perspective, the average weekly return since 1982 is .19% and the index has risen 57% percent of the time. This is a bullish setup 

S&P500 volatility says the correction is drawing to an end

In addition to positive seasonals; equity volatility says that the range trade/correction of the past month is drawing to a conclusion. Specifically, the VXV/VIX ratio (VXV is the BBG ticker for 3m SP500 Volatility) is about to reach levels that have repeatedly coincided with a resumption of the larger bull trend. While allowing for one last dip into 1775/1745 support, the bull trend is about to resume.

Stay bearish US Treasuries. TYH4 is resuming its bear trend

 

A resumption of the larger bull trend in US equities should put added weight on the US Treasury market. We remain bearish and short TYH4. We look for 10s to test 2.95%/3.00% in the weeks ahead, while 5s remain on track for 1.67%/1.69%. TYH4 targets 122-06+ following the completion of a 2m Head and Shoulders Top.

The US $ should do well. Stay bullish $/¥

 

The combination of bullish US equities and bearish US Treasuries should be supportive for the US $, particularly against the Japanese ¥. We continue to target 104.60/105.00 (and potentially beyond) into year-end. Pullbacks should hold 101.62, but $/¥ bears don't gain control UNTIL A BREAK OF 100.62.

 

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Sun, 12/15/2013 - 19:36 | 4249131 LetThemEatRand
LetThemEatRand's picture

Sheep 1:  "hey, what's that big building and all that noise?"

Sheep 2:  "I don't know, but that nice man says we should check it out.  He's from the Bank of America."

Sheep 1:  "Bank of America?  Sounds official.  Let's go"

 

 

Sun, 12/15/2013 - 19:42 | 4249138 Pinto Currency
Pinto Currency's picture

The trader can look at these historical stats and roll the dice.

Longer term issues seem to be rising interest rates and the market's increasing rejection of US tech because of NSA spying.

China isn't going to trust US switches and chips while they are scrapping over a host of things - seems US tech has been struck down by US 'intelligence' - and US tech has been underpinning the bubbling stock market.

 

Sun, 12/15/2013 - 19:55 | 4249153 LetThemEatRand
LetThemEatRand's picture

What's really funny in a "who could have seen that coming" other than anyone with half a brain sort of way, is that China makes most of the hardware that is found in U.S. tech, including in computers used by the NSA and the U.S. military.  If you've got Chinese manufactured Intel inside, you've probably got Chinese intel inside.    At the very least, you have a computer running your systems that your new found military threat knows inside and out.  So not only has globalization destroyed our middle class, but it has probably compromised our ability to defend ourselves as well.  America's military advantage is largely in the high tech arena.  Anyone with some steel and some gunpowder can make a boat with guns on it.  Thanks, oligarch overlords.  You've done it again.

Sun, 12/15/2013 - 20:09 | 4249180 augustusgloop
augustusgloop's picture

Puts a whole new perspective on "Manchurian Candidate." 

Sun, 12/15/2013 - 20:42 | 4249211 AlaricBalth
AlaricBalth's picture

Speaking of oligarch overlords, I am awaiting Edward Snowden's, via The Guardian, response to the puff piece about the NSA which is being broadcast on 60 Minutes. When General Alexander referenced his daughter I got physically ill.

According to numerous studies, the eyes dilate when someone is lying. For someone sitting in a well lit room with TV lights blaring in his direction, Alexander's pupils seem abnormally large.

Mon, 12/16/2013 - 02:59 | 4249833 Rock On Roger
Rock On Roger's picture

Cocaine

Sun, 12/15/2013 - 20:34 | 4249214 LawsofPhysics
LawsofPhysics's picture

Indeed.  Of course anyone with a fairly basic UNIX and programing understanding can make things pretty hard to access.  Believe it or not, even a simple farmer has an internal network, accessible by only three persons.  If there is a breach of security, two of the tribe members will go missing.  unplug people, so easy, even a caveman can build his own network.

Sun, 12/15/2013 - 19:37 | 4249134 holdbuysell
holdbuysell's picture

We are also now below the fed balance sheet trend line, which should put the s&p at 181+/- 3 or so by the end of year.

Tyler, can you show that graph again?

Sun, 12/15/2013 - 20:12 | 4249185 YHC-FTSE
YHC-FTSE's picture

Disagree with BofAml with their short term "opportunity". It can either be bullish or bearish,  so no great effort is needed for a binary answer, but as posted before, I think we might see a red December, certainly January to have an excuse to continue the asset purchases & incrementally increase the debt ceiling when that debacle comes around again in February.  As far as I'm aware, the efforts to make the debt ceiling the exclusive responsibility of the president (McConnell rule) has not been implemented. If it has, then there would be no need for a headfake, and this article would be correct.  Either way, we all know indexes are going to the moon until it implodes. 

We should not be surprised if the FOMC meeting has a press announcement that includes the word, "taper", again to give the markets a big nudge in the bearish direction. 

Sun, 12/15/2013 - 20:48 | 4249240 LawsofPhysics
LawsofPhysics's picture

Too many "real" traders have done the math and know they will print. The robots are "trading" for the institutions and pensions now. They have to or face massive margin calls...

Selling is illegal, it's time for a new "currency model" TPTB around the world know this.

I don't know what 2014 holds, but I do know that when fraud/manipulation is the status quo, possession is the law.

 

Sun, 12/15/2013 - 20:19 | 4249195 Being Free
Being Free's picture

Right.  Anyone else remember when the "market" went up every Tuesday?

Sun, 12/15/2013 - 20:21 | 4249199 Pig Circus
Pig Circus's picture

I have a hard time taking advice from a bank that if not for a rigged market couldn't pay its bills.

Fuck You Bank Of Ass.

Sun, 12/15/2013 - 20:32 | 4249216 johngaltfla
johngaltfla's picture

IF you're a 72-96 hour trader looking for a Monica, this is it. 2014 is the reverse; it is assrape of the worst kind...for short term traders, and for the CNBS idiots, bulls who will get carved and cooked quickly.

Sun, 12/15/2013 - 21:06 | 4249285 q99x2
q99x2's picture

Technicals; now there's a crock of shit that ain't been given the light of day in the mind of monkey since markets began to speak FED.

Sun, 12/15/2013 - 21:12 | 4249293 doggis
doggis's picture

SO THE PBOC HAS STATED THAT THEY WILL NO LONGER EXPAND THEIR BALANCE SHEET - AS IT NO LONGER SERVES THEM SO TO DO.

THEIR LIQUIDITY HOSE IS BIGGER THAN ANYONE ELSES.

THEY ARE THE TAPER.

THE MARKETS HAVE BEEN WEAK "POST" THE PBOC ANNOUNCEMENT

 

SO BANK OF AMERICAN MISREPRESENTATIONS AND LIES [BOFA/ML] WE DON'T TRUST YOU!!!!

GO SHORT!

Sun, 12/15/2013 - 21:21 | 4249309 doggis
doggis's picture

TD,

 

WHERE IS THE COMPARISION OF THE BALANCE SHEET OF THE PBOC AND THE S&P 500.

METHINKS IT IS TIME TO SEE THE TRUE CORRELATION WHICH HAS BEEN THE CAUSATION OF THE S/P EPIC RISE.

Sun, 12/15/2013 - 21:17 | 4249304 TheRideNeverEnds
TheRideNeverEnds's picture

probability of going substantially higher from DEC trip witching - 75%

probability of going substantially higher from fed announcement be it taper or no taper - 75%

probability of going substantially higher from buy the dip mania - 75%

 

totaly probability of going dramatically higher to close the year around 1850 = 225%

 

If my math is sound I should be buying ES futures with both hands, am I doing it right?

 

Maybe I will compromise and just sell an assload of 1800 stike puts for DEC at some number over zero as clearly closing the year above 1800 is a given.  

 

The only question is will we be up just  7% next year or will it be another double digit percentage gaining year.   

 

Sun, 12/15/2013 - 21:55 | 4249380 gafgroocK
gafgroocK's picture

 

 

 

Its now called the Triple Bitching 

Mon, 12/16/2013 - 03:23 | 4249848 Iam Yue2
Iam Yue2's picture

Let's hope he does better than last time, when hold got routed, in stolperish fashion, as soon as he turned bullish;
"BofAML's MacNeil Curry is changing his view on gold from bearish to bullish. The impulsive gains from the 1251 low of Oct-15 and break of the two-month downtrend (confirmed on the break of 1330) tells him that a medium-term base and bullish turn is unfolding. BoFAML looks for an ultimate break of the 1433 highs of Aug-28, with potential for a push to 1500/1533 long term resistance. In the next several sessions Curry suggest buying dips into 1309, cautioning that this bullish view is "wrong" if gold breaks below 1251. For those awaiting additional confirmation of a turn, Curry notes you need to see a break of 1375 (Sep-19 high & right shoulder off a multi-month Head and Shoulders Top)."

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