The Day and Week Ahead

• Posted by Adam Warner
• on July 12th, 2010

Two of my favorite numbers guys looking for a down day today. This, from Market Tells (sub required).

Jason Goepfert from SentimenTrader shared the following seasonal pattern via twitter Friday… when S&P futures have gained 0.5% on the last three days of a week, the first day of the following week has been down 74% of the time, averaging a loss of 0.7%.

…..Out of 29 occurrences since 1990, the S&P closed lower the next day 23 times, or 79% of the time. That’s a significant downside edge compared with the 47% random chance for a lower S&P close one day later in the same time frame. In only one case did the S&P gain over 0.6% the next day, while it fell over 0.6% fourteen times.

But….all hope is not lost…at least after today.

While the seasonal pattern based on three consecutive 0.5% gains for the SPX in the Wednesday-Friday time frame has bearish implications for Monday, the late-week gains also preceded this week’s options expiration. Interestingly, when the market moves steadily higher in the three days prior to options expiration week, the S&P has a strong track record of continuing to push higher over the next 2-4 sessions.

….… the S&P closed higher (above the setup day’s close) at some point during expiration week 100% of the time. And the S&P closed higher 2-4 days later in 28 out of the last 30 occurrences, or 93% of the time, significantly above the 70% random chance for a higher S&P 2-4 sessions later in the same time frame. This tells us that while seasonal cycles favor a down day Monday, they favor higher prices (above Friday’s close) in the Tuesday-Thursday time frame.

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