Breakaway Gap Continues To Hold
The gap from Tuesday is looking increasingly like
a "breakaway" gap that doesn't fill very quickly.
The intraday lows of the past four days have all
been above the high from December 30th. With the S&P within spitting
distance of a multi-month high, that's impressive persistence.
Out of 20 other times it has happened in the
history of the S&P 500 SPDR (SPY), only 1 time did the S&P fall back enough to
close the gap within the next week. 3 of them filled it within two weeks,
and 4 within a month. That means that 80% of the time, the momentum did
not let up anytime soon.
Low Volatility Ahead Of January
The biggest sore spot, as we've touched on almost
daily, is seasonality.
There have been 10 days since 1986 when the VIX
"fear gauge" dropped to at least a three-month low before earnings season kicked
off in January. Of those 10 days, 9 showed a negative return through the
end of the month. The sole gainer was +0.4%.
The 10 days were clustered among four different
years, but the outcome was similar - low reward and high risk for the S&P.
The maximum gain into month-end averaged only +1.1%, while the maximum loss
averaged a painful -6.8%.