August 17, 2017

Options Expiration: Will we see a gap lower?

The indices did not quite hit the extremes we were looking for (close of the 2/5 gap) today. The market drifted higher early and retested thehighs from yesterday. Unfortunately, the overhead resistance was too strong and the indices pulled back. Bernanke’s comments were just too much for the bulls to overcome today. As a result the indices closed near the lows of the day.

What does that mean? Well, for our Gap Fade strategy it means we will be paying close attention to how the futures react  before the opening bell. A smallish gap would probably not warrant a trade, but a large one certainly would. Tomorrow is options expiration so I expect to see a volatile intra-day session which is another plus for a Gap Fade.

As for the ETF Extremes strategy, well, another near trigger. As I have mentioned over the last several days a move that closed the gap from 2/5 would most likely trigger a signal. We didn’t quite get there. This move would have pushed the indices into an overbought state during a period of short-term seasonal weakness.

February 14, 2008 – Overbought/Oversold

S&P (SPY) – 51.2 (neutral)

Russell 2000 (IWM) – 48.0  (neutral)

Dow (DIA) – 52.4 (neutral)

Nasdaq 100 (QQQQ) – 47.3 (neutral) 

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