Daily Commentary - Posted on Sunday, December 11, 2011, 4:33 PM GMT +1

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Dec Sunday 11

FOMC and OpEx in same Week

With  – up to now – three postings over the weekend, I’ve been quite busy to say the least, but this will be the last one for today, promised, although it presents a remarkable calendar effect.

Next week will be OpEx week (options expiration), and as I just noticed that there will be an FOMC meeting on Tuesday, December 13 as well. The week leading up to December options expiration has historically been quite positive (see December OpEx Week), but I wondered about the market’s historical performance in the event both OpEx and an FOMC meeting happened to be in the same week.

Table I below shows all occurrences (since 1990) and the SPY‘s (S&P 500 SPDR) performance over the course of OpEx and FOMC week (both events happened to be in the same week), assumed one went long on close of the final session of the preceding week (in this event on Friday, December 9).

The SPY closed at a higher level two to five days later (regularly the Tuesday to options expiration Friday time frame) on three (or better) out of every four occurrences (or 75%+ of the time), and gained 1.0%+ three to five sessions later on 20 occurrences while closing lower 1.0%+ on 2 to 4 occurrences only (always compared to the SPY‘s close on the final session of the preceding week). With respect to 1.0%+ moves, a remarkable 5 : 1 ratio on the upside.

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Taking into account the fact that the SPY already performed positively month to date, Table II below shows all occurrences (since 1990) and the SPY‘s (S&P 500 SPDR) performance over the course of OpEx and FOMC week (both events happened to be in the same week), assumed one went long on close of the final session of the preceding week (in this event on Friday, December 9) in the event the SPY had already been up month to date on the respective trigger date (like on Friday, December 9).

This time the SPY closed at a higher level three to five days later (regularly the Wednesday to options expiration Friday time frame) on seven out of every eight occurrences (or 87.5% of the time), and closed higher 1.0%+ three to five sessions later on 13 out of 24 occurrences while never closing lower 1.0%+ on Thursday and Friday of the then following OpEx and FOMC week (always compared to the SPY‘s close on the final session of the preceding week). In addition, the SPY posted at least one close above the trigger day’s close over the course of OpEx and FOMC week on all 24 occurrences.

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Conclusion(s)

Even leaving out the bullish seasonality (end of the year time frame, and bullish December OpEx week), with OpEx and FOMC session in the same week (next week), historical probabilities and odds are indicating higher prices ahead over the course of the next week.

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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