Daily Commentary - Posted on Tuesday, December 13, 2011, 8:42 AM GMT +1

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Dec Tuesday 13

Down on 1st Session of DEC OpEx a. FOMC

The S&P 500 had a rough start into the December OpEx (options expiration) and FOMC week, down -1.49% on Monday, December 12.

But with the S&P 500 down on the 1st session of December’s OpEx or FOMC week, the index had shown a remarkable positive performance over the course of the then following two weeks in the past.

Table I below shows all occurrences (since 1990) and the S&P 500 performance over the course of the remainder of the FOMC week and at until the end of the then following week as well (in this event on Friday, December 23) in the event the S&P 500 closed lower on the first session of December’s FOMC week.

The S&P 500 closed at a higher level at the end of the week on two out of every three occurrences, and at the end of the then following week on 25 out of 29 occurrences (or 86.20% of the time). The index gained 1.0%+ until the end of the week and until the end of the then following week on 10 and 14 occurrences respectively, while closing lower 1.0%+ on 1 to 2 occurrences only (always compared to the S&P 500 close on the first session of the FOMC week).

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Probabilities and odds are even more tilt in favor of higher prices and limited downside potential in the event when the S&P 500 had been down on the 1st session of December’s OpEx week in the past.

Table II below shows all occurrences (since 1974, standardized exchange traded call options were released for trading by the Chicago Board of Options Exchange (CBOE) and the Options Clearing Corporation (OCC) in 1973) and the S&P 500′ performance over the course of the remainder of the OpEx week and until the end of the then following week as well (in this event on Friday, December 23) in the event the S&P 500 closed lower on the first session of December’s OpEx week.

The S&P 500 closed at a higher level at the end of the week on 12 out of 15 occurrences, and at the end of the then following week on 13 out of 15 occurrences, and posted at least one higher close until the end of the then following week on all 15 occurrences. The index gained 1.0%+ until the end of the week and until the end of the then following week on 7 and 9 occurrences respectively, while never closing lower 1.0%+ on any of those points in time listed below on all 15 occurrences  (always compared to the S&P 500 close on the first session of the OpEx week).

In addition, the S&P 500 closed at a higher level at the end of the year on 14 out of 15 occurrences (thereof on 12 w/ a 1.0%+ gain), while lower on only one occurrence ( -0.19% ).

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Conclusion(s)

Although the market’s prospect might not look very bright with the S&P 500 down -1.46% on the first session during an otherwise bullish seasonality, historically probabilities and odds are tilt in favor of higer prices and limited downside potential over the course of the next two weeks.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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