Gap theory professes that the majority of Gaps in trading must be retested. I haven't done the research to see how often this holds true, but it does fall in line with my observation that the market gravitates to those areas which generate activity and Gaps create unfulfilled mental executions as those who missed the opportunity to trade at those levels on the Gap session, get a 'Do Over' on a retest. One of the nuances of Gap theory I feel needs a better understanding is how important is a Gap if the same area was traded in the previous week. My instincts are the longer period of time surpassed prior to the Gap, the more significant it becomes. Regardless, the S&P Cash took the last four days to meticulously fill the 1312.70-1319.12 Gap established on April 19-20. If you view the charts with bullish colored glassed, this looks like the establishment of the base for this next move up.
June's average performance is very normal and dull under most circumstances I looked into.
1. Since 1950, June is 31-30 for a median gain of 0.01%
2. Since 1980, June is 18-13 for a median gain of 0.07%
3. June is the least volatile month of the year on average since 1980 with the smallest absolute value (2.60%) of performance of the 12 months. This would normally make index option purchases tough propositions and is likely, part of the reason, why you see the VIX (16.09) eroding.
4. Since 1950, PreElection Year Junes are 9-6 for median gain of 1.75%
5. May is down 2.78% with two trading days remaining. When May is negative, June is 12-14 for a median loss of -0.80.
6. The Wed-Friday three day period after Memorial Day is 21-9 over the last 30 years for a median gain of 0.93%, but most impressively is the fact the 1% moves over those 3 days are 13-1. The one 1% loser coming 29 years ago (1982).
Memorial Day is the only three day weekend I recall with a better track record in the 'week after', than the 'week before', due likely in some part to the fact the 'week after' catches the beginning of the month bullish bulge.
Whom the God's Will Destroy, They First Make Brave
Several variants of the above are quoted in ancient text, but often attributed to the Greek playwright, Euripides 430 BC. Regardless, of the source, I was reminded today of its timeless wisdom, as I made the mistake of brazenly boasting in yesterday's commentary of some recent experimental success I was having with the trading of multiple commodities. The commodity Gods must have felt insulted by my pious attitude as they took the opportunity to remind me of my trading mortality by taking my short Wheat position out behind the barn and spanking its fanny to the tune of a 2.2% loss. Trading Commodities ain't for Sissies.
If I weren't Long SPs tomorrow, I would take a shot at Long Oil, which shows an upward bias on Friday's before three weekends including Memorial Day which it has been positive 9 of the last 10 years.
Wayne Whaley is a Systems Engineering graduate from Georgia Tech who takes an engineering approach to tape analysis. He is a registered CTA, co-owner of Witter & Lester and the 2010 MTA Charles Dow Award winner for research surveying various tape measures. For more insight see www.witterlester.com.