TSP Talk: Post Quadruple Witching

Last week started out shaky for the stock market as we saw a sell-off on Monday, which experience a hangover from the jobs report. Despite some nice rallies, the indices struggled to move above the break-even mark through Thursday, but on Friday the bulls took charge and it moved stocks into positive territory for the week, although small cap stocks lagged.

Here are the TSP fund returns for the week of June 11 through June 15.

Last week was an option expiration week, and 4 different option contracts expired making it a quadruple witching week. Sometimes the action can be a little strange because of traders jockeying for position before their options contracts expire. That action tends to have a negative impact during post options weeks, particularly June quadruple witching weeks. More on that below.

The rally on Friday took the S&P 500 to a new multi-week high, and it appears as if it wants to breakout of the inverted head and shoulders pattern after moving above the 50-day EMA. But as you’ll see, we may want to take a look at the past to help us decide what this next week could bring.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The recent inverted head and shoulders patterns have mostly gone one of two ways. The first is a direct breakout from the inverted H&S like we saw in early 2010. The other, and actually more common over the last few years, is to first see a pullback to test the middle of the head of the inverted head and shoulders, before rallying.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

For more on the inverted head and shoulders pattern, please see Friday’s Market Commentary.

There is a big election going on in Greece this weekend and that may have a big impact on the markets, making our analysis moot, but the charts can sometimes tell the story before the news event occurs.

The data tells us that the week following June options expiration week is historically weak, even if the market rallied the prior week as we see here in this chart from 2007. This is actually typical action…

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The week after June options expiration week has been negative for 9 consecutive years with an average loss of 1.39%.

I will post more detailed information on these June options trends in Monday morning’s Market Commentary.

So Greece is in the spotlight once again. The question is, will Greece make the market buck the weak June trend, or is the June trend showing us what the reaction to the elections in Greece will be?

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley


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The legal stuff: This information is for educational purposes only! This is not advice or are commendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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