Hello, fellow traders, it’s the New Year and a new beginning! The year 2023 had brought some fascinating trends on stocks and S&P, and we are eagerly waiting to see what else 2024 has in store for us. To start with, let me remind you that January is a month that comes with volatile seasonality trends in the stock market. So, buckle up, grab a cup of coffee, and let’s see what’s in store for us.
In this article, I will talk about:
- General Monthly Trends and “Seasonality”
- Intraday Trading Tools for an “Edge”
- S&P Key Technical Levels
Author’s Disclaimer: This is not trade or financial advice. This information is being presented for entertainment purposes and represents the OPINION of the author. All trading and investing, whether real estate, stocks, or crypto, involves the risk of loss, sometimes greater than 100% loss. Do not trade or invest with funds you are not willing to lose. Please do your own research and verify information for yourself. We recommend paper trading to practice trading principles. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.
General Monthly Trends and “Seasonality”
January is often considered a season of new beginnings, and the stock market is no exception. After a much needed break during the holiday season and low trading volumes, it’s time to get back to business.
But don’t go buying blindly. Let’s look at the general Seasonality trend of the calendar year. I’m going to bring up 3 random seasonality charts from an internet search and look for commonalities:
What I’m seeing here, is that December is typically a bullish month, often accompanied by the “Santa Rally” after Christmas. Then the following month, January (current month as of this article) is somewhat mediocre — a middle ground. Some believe this pullback is due to “unwinding” of heavy call Open Interest from Dec OPEX and LEAPS into Jan OPEX.
In other words, as traders buy calls betting on a generally bullish trend for the market, Market Makers have to sell these calls to us retail traders, as well as institutional investors.
Well, being short calls when a stock goes up equates to some big losses. So, to stay market neutral, Market Makers will buy stock or, in the case of indices, buy futures contracts.
Thus, as the market goes up, the gain on long stock or futures offsets or ‘negates’ the losses incurred by being short calls sold to us.
Come large OPEX (Option Expiration) like December and January, all those calls expire, so the Market Makers have to sell all those shares and futures they had bought. Thus, massive selling around end of December into mid-January leads to an almost inevitable drop in Market trend and increase in volatility around this time.
Interestingly, the volatility effect was not as pronounced this year, due to the ability of Market Makers to now hedge with 0 DTE or near term options. Historically, Dec OPEX — a “triple-witching” with the expiry of weekly, monthly, and quarterly options, is accompanied by a significant pullback. Not so, this year. Rather uneventful in my opinion.
So, I’m not really sure how Jan OPEX is going to react. We have, in fact, seen some market correction, but as I will point out, maybe we were ‘due’ for one because of the bullish trend that plowed through November and December 2023. We’ll look at technical levels next.
Before I do, however, isn’t interesting from the images above how September is almost ALWAYS a bearish month? Could be a great time to buy dips on your favorite stocks. Not sayin’ to do anything, but wouldn’t it be great to buy our favorite stocks or indices on the Jan-Feb and take profit August, then re-enter on September’s pullback targeting December take profit levels? Hmmm …
Intraday Trading Tools for an “Edge”
I wanted to first show the whole of 2023. The indicators are provided by InsiderFinance and I NEVER trade without them!!! They are especially useful to me when daytrading. I find that they can find entries and exits earlier than any other indicator I have tried. I will do an example later in this article on how I trade with these amazing tools.
You can see that December 2022 to January 2023 at the left of the chart DID show seasonal volatility. I think this was BEFORE 0 DTE gained popularity, so the pullback was realized. Then in September, we did see the decline start and even dropped the market below the 200 SMA. Then the market bottomed, and had its bullish move the rest of the year. Honestly, I couldn’t really believe it. All this talk about rate hikes, recession, and the market did THAT? Nope, did not expect that, LOL
Well, let’s look at some interesting key levels provided by SpotGamma. These guys do things a little different. Y’see, most online trader influencers will show you historical open interest, maybe trend lines, or maybe some candle patterns. Well these guys analyze volatility, term structure, skew, and market delta and market gamma. That last sentence in itself stops most traders in their tracks!
Most retail traders will be looking at levels of Support, Resistance, Supply, Demand. Others will be looking at candle patterns or Fibonacci levels.
But if I were to show most retail traders this chart:
They wouldn’t have a clue what they were looking at! LOL
Well, don’t worry, you won’t be tested on what that chart means. But, the point I wanted to get across was that their method yields some pretty impressive and often VERY accurate predictions of market levels. Here are just a few examples:
And, as I had said earlier, here is an example of how I trade. First, I will just show you a clean chart, so you can see how price ‘loved’ SpotGamma’s levels:
How would your trading change if you ‘called’ the top and bottom of the day — in advance?!! I will tell you that they DO update their levels daily. If you are interested in learning more about what they offer, here is my affiliate referral link (banner):
Now, I am going to show you the EXACT same chart, but with the proprietary InsiderFinance technical indicators overlayed the SpotGamma levels. They probably don’t want me mixing and matching like that, but doing it this way gives me an incredible edge when day trading!! These technical indicators are INVITE-ONLY on Trading View, so you would need to sign up for a subscription (cheap compared to the “edge” it gives you). I also have a discount code you could try:
Go to:
Then:
- Use the code BSTOXX20 for 20% off once on any plan
You’ll see. InsiderFinance uses a “Smart Insight” filter for real-time option order flow from institutional orders. I use this tool often to determine what strikes and expirations to buy for swing trades. They also excel with finding Unusual Option Activity trade ideas.
So, I used the Buy and Sell indicators, Spot Gamma levels, and oversold and overbought from the Stochastic RSI to basically enter short in the morning, then range-bouncing all day to yield the following profit on 1-lot /ES and 3-lot /MES:
S&P Key Technical Levels
It just so happens, that SpotGamma identifies these key levels in advance of the market day. They do it by measuring market gamma. Whoops! Did I lose you? LOL
Gamma, if you recall, is the rate of change of the delta of an option, where delta was the change in premium per $1 move in the underlying. I know, I know … my brother’s sister’s roommate’s uncle! LOL. Well, however or whatever they are doing WORKS!
Let’s finish this article with some KEY LEVELS they have identified and will become important for January 2024’s volatility and Jan OPEX.
No one has a crystal ball. The market does what it wants. I reacts to news, sometimes in mysterious ways. I’m a retail trader, and I’m often wrong. But, if I were to give my opinion on what I think the market MIGHT do based on the information I’ve given you today, I see next week a small bounce to resistance maybe Large Gamma 2 (L2) of $4745, or even towards the Volatility Trigger level of $4760. I’m basing that bounce on the oversold condition of the Stochastic RSI and the bounce on the 21 EMA.
Then, Stoch.RSI might top out and allow a bearish trend to resume towards Jan 19 OPEX. If the 8 EMA should cross the 21 EMA (Daily), that will be very bearish, in my opinion, for monthly expirations Jan-Feb, and approach the Put Wall at $4645.
But, let’s say we get lucky and the market doesn’t want to dip that low. Then, maybe the market just bounces around between $4700 and $4760, and resume a bullish trend for the Spring.
Who knows.
Don’t do what I do. But what I AM doing is using this as an opportunity to buy some dips for my IRA on my favorite stocks and dividend stocks.
For futures traders, January could prove to be a month full of interesting opportunities. The high volatility in stocks could result in a significant shift in the market trends and, ultimately, significant profits for futures traders. Besides, the option traders looking to capitalize on the market changes can also take advantage of the January volatile market trends and make a substantial profit.
In conclusion, January is not the month to stay on the sidelines and wait for the trends to unfold. It’s the perfect month to leverage the market opportunities and secure profits. As the stock market enters the new year, January’s seasonality and trends indicate volatility and profitable market movements, and traders should take advantage of it. So, it’s time to buckle up, adjust your strategies, and dive into the January stock market opportunities with wit and vigor!
Stay Tuned!
Coming soon is my review for an option strategy OPTIMIZER!!!
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Thanks for reading!!
~Ryan @ BlockStoxx
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