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The Answer was “No.”

A week ago today in the post titled OpEx Ramps: Will Next Week Be Different?, I published the first chart below highlighting the well-known pattern of stock market ramp-jobs on the week or so leading up to options expiration (OpEx) each month. The horizontal lines mark the 3rd Friday of each month (standard equity & index options expiration).

QQQ OpEx Market Ramps Nov 13th

QQQ OpEx Market Ramps Nov 13th

 

While I was wrong on my hunch that Nov might be another outlier like we had in August, where they didn't ramp the market higher on the week of OpEx, not only does that not dampen my expectations for a decent pullback very soon but as history shows, the OpEx ramps are nearly immediately faded just as often as they occur. I want to share my current though process which is the fact that I still believe the upside is very limited at this point before a decent reversal kicks in, which in no way has to do with confirmation bias, as it is simply a reflection of both my current read on the charts as well as playing the odds as per the patterns in this chart below. Although I did go against the odds last week (well, somewhat, as I did reduce short exposure on Friday while stating that I expected a bounce early in the week), the very fact that very reliable pattern of ramping the market higher into options expiration did indeed occur, only increases the likelihood that the same pattern of post-OpEx selloffs will also play out next week. In this updated chart of the QQQ, the black arrows show that the OpEx ramps are nearly immediately faded just as often as they occur.

QQQ OpEx Market Ramps Nov 20th

QQQ OpEx Market Ramps Nov 20th

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Nov 20, 2015 9:46am|Categories: Equity Market Analysis|Tags: , , |7 Comments

7 Comments

  1. rosinha November 20, 2015 9:53 am at 9:53 am

    but don’t forget the tendency for bullishness during holiday weeks

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    • rsotc November 20, 2015 10:09 am at 10:09 am

      Good point rosinha. Seasonality next week favors the bulls. Maybe if my analysis proves correct then well see something similar to the post OpEx move that I highlighted back in June, where after OpEx, the market moved slightly higher (just over 1%) for the next 7 trading sessions before reversing trend & falling about 3.4% (peak to trough). The week of Thanksgiving is typically marked by very low trading volume & I will often pull my stops on or around low volume holidays (as well as try to avoid entering any new positions).

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  2. schooner November 20, 2015 9:55 am at 9:55 am

    That’s a very interesting chart! I hadn’t realized that there was such a well established pattern of ramp/selloff with OpEx. This feels very much like a trend day now and, barring some news out of the blue, I wouldn’t expect a significant intra-day reversal that’s playable. Maybe a good day to take off early and enjoy a long weekend 🙂

    Thanks for all the great charts and analysis.

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    • rsotc November 20, 2015 10:12 am at 10:12 am

      schooner- I’m with you on the fact that today is probably a good day to take off & start an early weekend. I was planning on doing that as well.

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  3. jupiter November 20, 2015 10:07 am at 10:07 am

    Randy,

    You give reasonable and compelling evidence for your view; am still holding on to my short (PSQ).

    Good weekend ; and thanks for answering all the questions with much detail.

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  4. alshaw November 20, 2015 10:23 am at 10:23 am

    a huge flaw miss reading on the chart turkey week this market has a 90 to 100%chance it will be up all week we are in a 1999 bubble never ever would i go short into that week that would be one of the worst trades you could ever make nov 30 ya

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  5. rsotc November 20, 2015 10:38 am at 10:38 am

    Another “catch” isn’t a criticism of the Seasonality Timing System, per se, but an inherent feature of how track records get calculated: Long-term averages don’t translate into a guarantee in any given year. Consider, for example, the percentage of time the Dow has risen over the two days prior to Thanksgiving and the day after — the three-day period of seasonal strength that Fosback associates with Thanksgiving. Since 1896, when the Dow was created, a gain has occurred 62% of the time, which means the market has gone up five of every eight times, on average.

    That’s impressive from a statistical point of view, since it’s about 10 percentage points higher than that of all other three-day periods over the past century. But it still means the stock market declines 38% of the time.”

    source: Mark Hulbert via MarketWatch http://www.marketwatch.com/story/how-the-stock-market-behaves-before-and-after-thanksgiving-2014-11-24

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