After whipsawing back and forth for most of April, the market charged ahead in May with single-minded focus. SPX was up nearly 6% at its peak, but gave up most of it to end the month only 2% ahead.
It wasn’t for lack of opportunities. Many times, the market would close on the cusp of a downturn motivated by normally reliable patterns. But, in almost every instance, an overnight ramp job would come to the rescue and the market would blow right through the resistance on the opening bell.
May’s reliance on overnight ramp jobs for net gains was truly stunning. The following chart compares the total points attributable to gaps up and the subsequent hour of trading to the net points gained for each of the past three months.
The other 5% of trading hours — the 7 times the market gapped up on the opening — added 100 points for a net gain of 2.2% on the month.
Throw in March and April, and the “bull market” begins to look every bit the product of gimmickery: it took 200 points of ramp jobs since the end of February for SPX to gain 172 points to the 1687 high. Two more gaps up occurred during the late May decline for a combined 230 points expended…to produce a net 115-pt gain.
I backed off holding positions overnight — even though it meant for greater trading volume. I’m a swing trader by nature. I like big 50-75 pt swings over a week or two. But, I was sucked into bearish setups way too many times — only to wake to a 15 point overnight ramp job. The 60-min chart below shows many such instances.
The upshot: way more trades than I would have liked. But, like April, it paid off: 13.1% versus 3.5% for the S&P 500. This brings YTD results to 50.97% for a slightly better than 10% per month average.
But, it also underscores a quandary going forward: close out positions each day, or take a chance on continued manipulation in the overnight markets. Those who trade eminis versus ETFs can sidestep such issues — an increasingly compelling idea.
Starting and ending the day in cash almost guarantees 4+ trades per day — about 88-92 per month. I suppose it’s worth it for 10% per month; but, it makes communicating trades to members that much more difficult. And, it makes a managed account that much more appealing.
The Fine Print:
- Represents performance of a theoretical portfolio, where SPX is bought or shorted based on signals generated by my research. Your mileage will vary.
- Assumes no leverage: generally 100% long, 100% short or 100% cash.
- Prices listed reflect the SPX at the time tops/bottoms are called and are believed, but not guaranteed, to be accurate. Dividends and transaction costs are ignored.
- MTM = marked to market.
- Results are since inception of pebblewriter.com on March 22, 2012.
- Past results are not necessarily indicative of future results. See Disclosures and Use Agreement for important information.