Daily Commentary - Posted on Saturday, February 18, 2012, 8:19 PM GMT +1
OpEx and Index Highs
The expected (see OpEx Week and Multi-Month High) short-term pullback took two days only, and the SPY (S&P 500 SPDR) closed out February’s option expiration week with a streak of three consecutive sessions where a new trailing 1-year(+) high price has been made (or matched) during the session.
But historically February’s option expiration shows a remarkable tendency for major market indices to reverse course over the remainder of the month in the event the S&P 500 had either closed at a new trailing 1-month(+) high at least once during February’s option expiration week (Table I), or option expiration marked the third (or more) consecutive sessions where (concerning the SPY) a new trailing 1-month high price has been made (or matched) during the session (Table II) in the past.
Table I below shows the S&P 500′s performance (cumulative returns) 1 to 3 days and 1 week later, followed by the performance over the remainder of the month, in the event the S&P 500 had closed at a new 1-month(+) high at least once during February’s option expiration week in the past, assumed one went long on close of the session where the new high had been made.
The S&P 500 posted at least one lower close below the trigger day’s close (in this event the S&P 500′s close on 02/16/2012) until the end of the month on 16 out of 17 occurrences, and had never closed up 1.0%+ 1 to 3 days later on all 17 occurrences. In addition, the S&P 500 closed at a lower level at the end of February in 13 out of 17 years, significantly worse than the at-any-time chances for closing higher/lower approximately 2 weeks later.
(click on image to enlarge)
Furthermore Friday’s option expiration marked the third consecutive sessions where a new trailing 1-year(+) high price has been made (or matched) during the session. Table II below shows the SPY‘s performance (cumulative returns) 1 to 3 days and 1 week later, followed by the performance over the remainder of the month, in the event this setup had been triggered in the past.
The SPY had closed lower the next day (in this event on Tuesday, February 21) on 14 out of 17 occurrences, and posted at least 1 lower close one or two days later on all 17 occurrences. Additionally, the SPY had never closed up 1.0%+ one week later, but lower -1.0%+ on 7 occurrences.
(click on image to enlarge)
If OpEx history gives guidance, upside potential over the next couple of days will probably be limited, and a short-term pullback seems likely …
Have a profitable week,
Disclosure: No position in the securities mentioned in this post at time of writing.
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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