July 28, 2017

In the midst of historical post-expiration weakness

The first day of the June option expiration cycle was greeted with the S&P surpassing its record close for the first time in over 7 years. The market moved sharply higher into the noon hour only to sell off sharply during the final hour of trading.

As I stated last week, a short-term reprieve looks likely this week as market performance during post-options expiration is historically weaker than normal. Couple the seasonal tendencies with an overbought market and very strong overhead resistance and you can see why we should expect to see the market struggle over the short-term (1-5 days).

I am starting to see several indicators elude to intermediate-term weakness ahead. I will go over some of these tomorrow. Also, as we move deeper into the weak I will discuss the seasonal tendencies that surround Memorial Day.

As I have stated several times over the past few weeks the market is in the midst of the weakest part of the year. Watch closely over the next week or so to see how the market reacts to the new highs. A push below Friday’s lows could potentially lead to a continued move lower. In a market where every dip has been bought a sustained sell-off could be a signal of things to come over the intermediate-term. As I said earlier, I will mention some of these in tomorrow’s post.

Overbought/Oversold levels for May 21, 2007

  • SPY –  73.8 (overbought)
  • DIA – 75.3 (overbought)
  • IWM – 65.4 (neutral)
  • QQQQ – 66.4 (neutral)
  • GLD –  39.5 (oversold)
  • OIH – 89.0 (very overbought)

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Have a great night!