Wayne Whaley Market Comments for Monday, Sept 20, 2010
I mentioned in my comments Thursday that although September expirations in these type of market trends are 20-5 since 1950, there has not been a 1% move on any of those 25 occasions. In its customary September Expiration fashion, the S&P traded within a 1% trading range Friday and finished the day up fractionally making the September expiration 21-5 without a 1% move under the trend constraints I defined. So much for the overhyped triple witching induced volatility.
I also suggested in my Thursday email we would likely get a retest of the 1030 level Friday morning that should hold for now. I suppose a blind squirrel finds an acorn every now and then.
Looking ahead, most of my seasonal work suggest we should have a favorable end of the year and I will share a summary of my fourth quarter outlook as we get closer to the end of September, but first the market has to negotiate its way through 'what is traditionally' the worst 10 calendar day period of the year. For example,
THE WEEK AFTER A STRONG OPTION EXPIRATION CYCLE
The September Option cycle was up 5.03%.
The September Option Expiration Week was up 1.45%.
MONTHLY OPTION EXPIRATIONS SINCE 1980
WHERE PREVIOUS OPTION CYCLE WAS UP 3.03-7.03%
AND THE OPEXWK WAS UP 0.95-1.95%
FRIDAY PREVIOUS PREVIOUS NEXT NEXT
DATE OPEXMT OPEXWK MONDAY WEEK
800118 3.23 1.05 0.93 2.29
801121 5.77 1.43 -0.58 -1.37
850517 3.48 1.70 1.23 0.46
870619 6.80 1.77 0.87 0.06
880916 4.00 1.43 -0.68 -0.33
890120 3.74 0.97 -0.74 2.51
890217 3.53 1.62 -0.26 -3.01
890721 4.53 1.22 -0.66 1.86
901221 4.61 1.51 -0.56 -0.46
921120 3.62 1.00 -0.36 1.10
921218 3.43 1.74 -0.13 -0.48
950915 4.32 1.86 -0.10 -0.28
960920 3.28 0.95 -0.08 -0.12
961018 3.47 1.45 -0.14 -1.39
990716 5.66 1.10 -0.78 -4.36
011116 6.07 1.64 1.09 1.65
030516 5.40 1.17 -2.49 -1.17
030919 4.61 1.73 -1.30 -3.81
031219 5.16 1.35 0.39 1.91
040116 4.70 1.60 -0.09 1.36
051118 5.82 1.10 0.53 0.74
#UP-DN = 06-15 10-11
AVG%CHG= -0.19 -0.13
MED%CHG= -0.14 -0.12
1%MOVES= 02-02 07-06
Note that 14 of the last 17 Mondays were down in this spot.
TRIPLE WITCHING OPEXWKS SINCE 1980
WHERE PREVIOUS OPTION CYCLE WAS UP 3.03-7.03%
AND THE OPEXWK WAS UP 0.95-1.95%
FRIDAY PREVIOUS PREVIOUS NEXT NEXT
DATE OPEXMT OPEXWK MONDAY WEEK
870619 6.80 1.77 0.87 0.06
880916 4.00 1.43 -0.68 -0.33
901221 4.61 1.51 -0.56 -0.46
921218 3.43 1.74 -0.13 -0.48
950915 4.32 1.86 -0.10 -0.28
960920 3.28 0.95 -0.08 -0.12
030919 4.61 1.73 -1.30 -3.81
031219 5.16 1.35 0.39 1.91
#UP-DN =02-06 02-06
AVG%CHG=-0.20 -0.44
MED%CHG=-0.12 -0.30
1%MOVES=00-01 01-01
Note the following week was down in 6 of last 7 cases.
SEPTEMBER OPTION EXPIRATIONS SINCE 1950
WHERE PREVIOUS OPTION CYCLE WAS UP 3.03-7.03%
AND THE OPEXWK WAS UP 0.95-1.95%
FRIDAY PREVIOUS PREVIOUS NEXT NEXT
DATE OPEXMT OPEXWK MONDAY WEEK
580919 4.00 1.79 -0.40 0.53
650917 3.88 1.04 0.03 -0.03
760917 3.81 1.55 0.05 0.50
880916 4.00 1.43 -0.68 -0.33
950915 4.32 1.86 -0.10 -0.28
960920 3.28 0.95 -0.08 -0.12
030919 4.61 1.73 -1.30 -3.81
#UP-DN =02-05 02-05
AVG%CHG=-0.35 -0.51
MED%CHG=-0.10 -0.12
1%MOVES=00-01 00-01
Note the last four Mondays and Weeks were down.
And recall our statistic showing the last 10 calendar days of September have been down in 61.7% of years since 1950. Obviously, the majority of the seasonals point to a downward second half of September and some hedging of long positions are in order for the remainder of the month, but I actually believe that, given consideration to all factors, there is a 50/50 chance we can finish the second half positive. As I mentioned during the week, statistics show the prospects of September improve as a function of the positive price momentum at midmonth. Recall the following,
SP PERFORMANCE FOR THE SECOND HALF OF SEPTEMBER, since 1950
UP-DN %UP AVG% MED%
All Years 28-32 46.67 -0.62 -0.27
If first Half of Sept is < -2% 06-09 40.00 -1.39 -0.45
1st Half of Sept is -2 to +2% 11-18 37.93 -0.65 -0.58
If 1st Half of Sept is > +2% 11-05 68.75 +0.26 +0.47
Given that we just booked the second highest first half of Sept performance in the last 60 years, there is some hope that the Bulls can overcome next week's traditional weakness.
There are very strong seasonal trends for the fourth quarter, yet some weak trends for the second half of September. It would seem logical to me there is money on the sidelines waiting to be put to work after what is 'perceived' to be the traditional weak Sept-October time frame. So you have a bit of 'Chicken' being played between the correction camp and the permabulls. But what happens next week to the intermediate Bulls that are in the correction camp, if the market doesn't show its traditional seasonal weakness? The correction camp has already blinked once, as September is off to a strong start and how much longer can the cash watch if the market continues to defy normal seasonal tendencies as our statistic in the above table suggest is a possibility?
ANOTHER LOOK AT SEASONAL VOLATILITY
Changing the pace a bit. On Friday, I showed you the results of a monthly volatility study and promised you a more detailed 36 minimonth breakdown. I find this interesting and potentially useful as on option trading tool and hope some of you will as well. There are periods of the year that are more conducive to option writing and others more suited for option buyin. Again the volatility number is the average daily volatility in each period of interest. As you can see in the table below, the 36 periods were obtained by dividing each month into 3 time periods, the majority of which are 10 calendar days.
TEN DAY SEASONAL VOLATILITY since 1980
IN CHRONOLOGICAL ORDER SORTED BY AVG% SORTED BY MED%
DATE AVG% MED% DATE AVG% DATE MED%
1 JAN01-10 0.88 0.56 OCT11-20 1.12 JAN21-31 0.65
2 JAN11-20 0.70 0.54 OCT21-31 0.96 FEB11-20 0.65
3 JAN21-31 0.82 0.65 NOV11-20 0.89 NOV11-20 0.64
4 FEB01-10 0.74 0.56 OCT01-10 0.89 JUL01-10 0.62
5 FEB11-20 0.73 0.65 JAN01-10 0.88 APR21-30 0.59
6 FEB21-28 0.78 0.56 SEP01-10 0.83 JUL21-31 0.58
7 MAR01-10 0.78 0.57 JAN21-31 0.82 OCT11-20 0.57
8 MAR11-20 0.80 0.52 MAR11-20 0.80 MAR01-10 0.57
9 MAR21-31 0.75 0.52 SEP21-30 0.80 MAY11-20 0.57
10 APR01-10 0.76 0.56 DEC01-10 0.80 DEC11-20 0.57
11 APR11-20 0.80 0.51 APR11-20 0.80 NOV01-10 0.56
12 APR21-30 0.72 0.59 NOV01-10 0.79 JAN01-10 0.56
13 MAY01-10 0.71 0.49 NOV21-30 0.79 OCT21-31 0.56
14 MAY11-20 0.71 0.57 FEB21-28 0.78 FEB21-28 0.56
15 MAY21-31 0.72 0.55 MAR01-10 0.78 APR01-10 0.56
16 JUN01-10 0.65 0.47 SEP11-20 0.76 FEB01-10 0.56
17 JUN11-20 0.67 0.50 APR01-10 0.76 SEP01-10 0.56
18 JUN21-30 0.68 0.53 JUL01-10 0.75 OCT01-10 0.55
19 JUL01-10 0.75 0.62 JUL21-31 0.75 MAY21-31 0.55
20 JUL11-20 0.69 0.53 MAR21-31 0.75 JAN11-20 0.54
21 JUL21-31 0.75 0.58 AUG01-10 0.74 JUL11-20 0.53
22 AUG01-10 0.74 0.46 FEB01-10 0.74 JUN21-30 0.53
23 AUG11-20 0.72 0.49 AUG21-31 0.74 MAR21-31 0.52
24 AUG21-31 0.74 0.47 DEC11-20 0.74 MAR11-20 0.52
25 SEP01-10 0.83 0.56 FEB11-20 0.73 SEP21-30 0.52
26 SEP11-20 0.76 0.51 AUG11-20 0.72 APR11-20 0.51
27 SEP21-30 0.80 0.52 APR21-30 0.72 DEC01-10 0.51
28 OCT01-10 0.89 0.55 MAY21-31 0.72 SEP11-20 0.51
29 OCT11-20 1.12 0.57 MAY11-20 0.71 NOV21-30 0.50
30 OCT21-31 0.96 0.56 MAY01-10 0.71 JUN11-20 0.50
31 NOV01-10 0.79 0.56 JAN11-20 0.70 MAY01-10 0.49
32 NOV11-20 0.89 0.64 JUL11-20 0.69 AUG11-20 0.49
33 NOV21-30 0.79 0.50 JUN21-30 0.68 AUG21-31 0.47
34 DEC01-10 0.80 0.51 JUN11-20 0.67 JUN01-10 0.47
35 DEC11-20 0.74 0.57 JUN01-10 0.65 AUG01-10 0.46
36 DEC21-31 0.57 0.42 DEC21-31 0.57 DEC21-31 0.42
OBSERVATIONS
1. Ranked by average, three of the top four periods were in October
2. However ranked by median, October doesn't show up in the top six.
3. Due to the fact the averages are skewed from the median by the fact the five most volatile days since 1980 all occurred in October
4. On a median basis, the end of January is suprisingly at the top
5. And not surprisingly, the holiday season brings up the rear
As mentioned, Octobers perceived weakness comes from it's tendency to support some big one day moves. Below is a table of all 5% moves in the S&P since 1980.
FIVE % DAILY MOVES
SINCE 1980
1 871019 -20.47
2 081013 11.58
3 081028 10.79
4 871021 9.10
5 081015 -9.03
6 081201 -8.93
7 080929 -8.81
8 871026 -8.28
9 081009 -7.62
10 090323 7.08
11 081113 6.92
12 971027 -6.87
13 980831 -6.79
14 880108 -6.77
15 081120 -6.71
16 081124 6.47
17 090310 6.37
18 081121 6.32
19 891013 -6.12
20 081119 -6.12
21 081022 -6.10
22 000414 -5.78
23 081007 -5.74
24 020724 5.73
25 020729 5.41
26 871020 5.33
27 090120 -5.28
28 080930 5.27
29 081105 -5.27
30 081112 -5.19
31 871016 -5.16
32 081216 5.14
33 971028 5.12
34 980908 5.09
35 081106 -5.03
36 010103 5.01
OBSERVATIONS
1. Since 1980, the five most volatile days all occurred in October, however three of them were positive.
2. October had 14 of the 36 five % days
3. 22 of the 36 five % days occurred in the two month October-November window.
4. One half of the 36 five % days occurred in 2008 followed by 1987 with five.
I can change one line of code and reproduce the above volatility study back to 1950, if anyone is interested.
MARKET MODEL RATINGS
For Monday Sept 20
Today Yday
Daily Model = 47.8 54.6
Intermediate = 68.8 69.1
PTA Model = 94.8 96.7
S&P500 = 1125.66
50DMA = 1093.73 Shortterm Trend Up
200DMA = 1116.12 Intermediate Trend UP
The intermediate model is strong but the day model is negative for Monday on the weak daily seasonals we discussed.
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