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

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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