Daily Commentary - Posted on Saturday, February 18, 2012, 8:19 PM GMT +1

16 Comments


Feb Saturday 18

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)


Table I
S&P 500 at a new 1-month high during February’s OpEx week

__________________

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)


Table II
SPY with 3 consecutive trailing 1-month intraday highs on OpEx

__________________

Conclusion(s)

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,

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)

Comments (16)

 

  1. [...] the price action studies (both sentiment and historic) continue to suggest limited upside (as they did also last week) and especially for today’s [...]

  2. GT says:

    2/16/12 : SPX 1358.04
    2/17/12 ; SPX 1361.23 + 3.19 (+0.23%)
    2/21/12: SPX 1362.21,[(+0.98(+0.07%)+3.19] + 4.17 over 2/16 or + 0.307%,
    (2 trading days later)
    If up after 2 trading days, on 3rd day it adds to gains or gets a big ugly red day to close below SPX 1358.04

  3. GT says:

    Re: Table 2
    Trigger : Fri 2/17 Options Exp.
    2/17/12 ; SPX 1361.23 + 3.19 (+0.23%)
    2/21/12: SPX 1362.21 +0.98(+0.07%) 1 trading day ltr
    2nd trading day later: ? unless get big ugly red day,with close way below SPX 1361.23, up on 3rd trading day

  4. GT says:

    Short $SPY / Long $RTH (Pairs Trade, equal dollar amount) at a ratio of 3.42125 $$, your tweet Feb 21

    If you are long RTH and short SPY, you must not be bearish while you have the trade on, as RTH is much more volatille than SPY, or be at least market neutral until you take it off, but doesn’t represent bearishness on $SPY overall. Let us please know when you close the trade.

  5. GT says:

    re: Table 2
    Trigger : Fri 2/17 Options Exp.
    2/17/12 ; SPX 1361.23 + 3.19 (+0.23%)

    Election year(s) 2012, ’08, ’04, ’00, 1996, 1992, 1988
    Your study : 2004, 1992, show better than avg. performance and are election years,
    1988 negative performance in your study, maybe they didn’t run the market up and were honest back then? one poor election year performance post Options Exp.

  6. GT says:

    Re: Table 2
    Trigger : Fri 2/17 Options Exp.
    2/17/12 ; SPX 1361.23

    2/21/12: SPX 1362.21 +0.98(+0.07%) 1 day LTR – UP
    2/22/12 SPX 1357.66 -3.57 (-0.26%) 2 DAY LTR – DOWN

  7. GT says:

    2/16/12 : SPX 1358.04 Trigger
    2/17/12 ; SPX 1361.23 + 3.19 (+0.23%) 1 day ltr. UP
    2/21/12: SPX 1362.21,[(+0.98(+0.07%)+3.19] + 4.17 over 2/16 or + 0.307%, (2 days later) UP
    2/22/12 SPX 1357.66 -0.38 (-0.0279%),3 DAY LTR – DOWN
    Lower close below the trigger day close,

  8. GT says:

    Intraday , RTH up over 1%, SPX 1371 +4, great trade , long rth/ short spy)!!!

  9. GT says:

    2/16/12 : SPX 1358.04 Trigger

    2/29/12 : SPX 1365.68, gain of 6.96 pts, or + 0.51%

  10. GT says:

    re: Table 2
    Trigger : Fri 2/17 Options Exp.
    2/17/12 ; SPX 1361.23

    2/29/12 : SPX 1365.68, (month end)
    +4.45 pts, or +0.3%

  11. GT says:

    SPX : Fri Options Exp Feb. 18, 2011

    1343.01

    SPX : 1343.36 (Tue Mar 6, 2012)

    Market reverts back to Feb Options Expiration of 2011

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  13. aimdal says:

    Simply a great work.. referred to all of your methodology,
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