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Another OpEx Ramp?

In the past, I've highlighted the tendency for the stock market to rally in the final days leading up to expiration for the standard equity & index options contracts, which falls on the 3rd Friday of every month. I've also mentioned how the rare exceptions over the last year or so in which the market did not rally during the final days leading up to OpEx were the two instances immediately following a top in the market after a strong advance. The logic behind this, or at least my best guess as to why the OpEx ramp didn't occur in those two instances is most likely to the excessive bullishness that comes after a strong advance, hence, there were likely more call buyer to be "roasted" than put buyer following those extended rallies.

OpEx Ramps March 16th

OpEx Ramps March 16th

 

Whether the next few days will see the market climb or at least hold onto the recent gains that were made over the last few weeks is yet to be seen. One thing that is almost a sure thing is the fact that FOMC announcement days, such as today, have a shown a fairly consistent pattern in recent years of stock prices typically meandering around somewhat aimlessly throughout the trading session up until the FOMC meeting announcement is released, typically followed by a very sharp & fast knee-jerk reaction in one direction or the other. Add to that the initial reaction is often quickly faded.

With the chances of a rate hike near zero, I'm not expecting a big fireworks show this afternoon although I will say that I expect trading to be choppy for the remainder of the week. I should also add that I typically try to avoid entering any new positions that trigger breakout on the post-Fed announcement volatility, as those breakouts have a considerable higher rate of failure due to the erratic swings in stock prices that typically follow the FOMC announcement. I will, however, take advantage of any post-FOMC volatility to close positions that hit any of my preferred price targets. Bottom line is that, for the most part, I will be sitting tight on my current swing positions for the remainder of the week while being very selective on adding any new position, long or short.

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Mar 16, 2016 8:51am|Categories: Equity Market Analysis|Tags: , |8 Comments

8 Comments

  1. jupiter March 16, 2016 9:00 am at 9:00 am

    also, to add to the mix, FDX is coming out with earnings after market hours (4:15).

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  2. snp March 16, 2016 9:26 am at 9:26 am

    what a sad comedy opex is and this addiction to fomc action as well. market, yeah, right.

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    • snipertrader March 16, 2016 10:08 am at 10:08 am

      Agreed. It’s a twisted situation indeed. While everyone’s keeping it light and sort of waiting and watching for the FED some thoughts…

      At this stage I actually think the US equity markets would be more disappointed with any signal or talk of slower or no more hikes rather than the a re-affirmation of more gradual hikes. On balance if the FED backs off the markets will probably be more scared and shaken by that than if they continue along their flight path the markets will probably be feeling that if the FED remains on track then the economy must be doing better. Plus the FED probably really wants to get off the ZIRP mat sooner than later now to reload the rate cut chambers for the future and completely avoid any notion of NIRP int he US – NIRP in the US would be a no go due to how huge US money markets are. As disastrous as NIRP was in other countries in the US it would be a catastrophe. Inflation did tick up to their target along with employment as well. If they don’t continue along now then when? Keep adjusting their targets? FED will lose major credibility if they back off now, despite all the talk back some of the FED govs did in Jan/Feb.during the plunge period. Markets like certainty and the most certainty relatively speaking would be maintained by the FED for them to remain the course. In fact FED should have started raising rates some time back earlier in the cycle. They came to the rate rise game too late which is why the markets threw up all over themselves from Dec thru Feb ( even though the FED had clearly signaled the first rate hike was coming sooner rather than later!).

      Continuing to raise rates this year may also have it’s benefits even though it on the surface can be viewed as “anti-stimulative” to the markets and economy. 1) It would be good for people to actually be able to earn some interest on their cash deposits – more saving/spending capacity. 2) Would seemingly shake lose some of those massive reserves banks have been sitting around on in a risk averse manner as they can begin lending out at higher rates. 3) May attract more foreign capital into the US due to the beneficial differential in US rates which might boost US next investment and markets 4) Might spur borrowing/consumption at lower rates today before rates start to rise more int he future..

      Not that I am a fan of even more debt in the global system mind you, as the systemic risks will only get worse over time from here. But just attempting to think thru how markets may interpret/react if the FED continues along the course with rate hikes. In a perhaps counter intuitive manner, maybe it won’t be so disappointed by it? Ultimately it will all come out in the “right side of the charts”! 🙂

      And BTW, is everyone watching those head and shoulder patterns on all the main indexes which have formed since August of last year? Probably the most closely watched technical pattern even by people who do not know much or anything about technical analysis ( these days H&S get talked about on TV ). We are right at a point of resolution here it seems.

      Final thought here … bull vs. bear. Let’s say we were still operating in a full fledged bull market from here, and the markets ( talking main indexes here ) had just risen in an overall rising uptrend as forcefully as it has done the past month. Would even a bull ( who uses technical analysis ) be a buyer at these elevated levels? Would a bull view the R/R even if were were still in a full on bull market as favorable? Even if the markets do actually rise further from here and we do resume the bull market … R/R even for a bull here on the indexes is not very favorable it seems. So even if we do resume bull market, odds would favor some sort of retrace lower ( even if the markets do not completely fall apart ) for a more favorable bullish R/R.

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      • cem602 March 16, 2016 10:41 am at 10:41 am

        Agreed + thank you for sharing your thoughts. I closed my IWM puts this morning to avoid any headaches resulting from wild price action / FED meeting this afternoon. If we are truly near the top, it’s a long ways down = plenty of time to catch part of the downside move. I’ll look to add puts if we spike upwards as I believe Randy is spot on that we are in the very early stages of a bear market (Currency wars, Canada already in a recession, China weakness, US ER decline, etc.).

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      • snp March 16, 2016 1:13 pm at 1:13 pm

        close above the 200 dma could usher in more buyers spx. a little fomo (fear of missing out)? mini bull flag on spx and ndx daily.

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      • snipertrader March 16, 2016 2:14 pm at 2:14 pm

        I posted this same statement above in Reply to another thread but ..

        “It is now expecting to raise rates only two times this year, down from its prior projection of four.”

        It’s probably little surprise they would not have the stomach to raise as many times as the “dot plot” indicated late last year after Jan/Feb. But they still are on path to further rate hikes this year ( supposedly – as that can change anytime based on what the markets do ). I suppose there was a little bit of something in there for everyone. They are balancing on their fence for the time being trying to keep things “stable” and “predictable” for the markets.

        Enough for the market to drift flat to higher thru to end of OpsEx week? We shall see. Glad the FED is at least “out of the way” now ( for the time being ).

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  3. jegersmart March 16, 2016 9:42 am at 9:42 am

    SUNE moves today….wow….

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  4. cem602 March 16, 2016 9:53 am at 9:53 am

    Thank you for the update Randy + looks they are trying to burn options this morning.

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