Strong Seasonality Ahead

December 18, 2006 · Print This Article

The trading day following options expiration is typically bearish and today was no different. The market moved higher at the open only to falter a half hour into the trading day. The impact of the sell-oof was felt in the higher-beta indices that we follow, the Russell (IWM) and Nasdaq 100 (QQQQ). Both indices are nearing oversold conditions and if they manage to move slightly lower intra-day tomorrow, testing the recent lows, the bulls could step in for a sohrt-term oversold bounce. Couple the potential oversold conditions with strong positive seasonalilty ahead and we could get a move back towards recent highs. This could certainly make for a nice short-term set-up over the next day or so. Historically, the closer the market gets to the holiday the more bullish the seasonal tendencies become, so it will be interesting to see if today or tomorrow morning is indeed the low for the week.

RSI Wilder (5) for December 18, 2006