- New Science in old markets -

Some raw cycle analysis

There has been some internet chatter lately about the effect of the monthly option expiry in US equity futures markets on price peaks in stocks. This monthly event is one of the inputs into our own cycle analysis so I thought we would comment.

Here is a chart of the S&P with the option expiry dates shown by both up and down arrows and a faint vertical line drawn over the day concerned, throughout 2015. We use arrows in both directions to avoid artificially colouring the viewers opinion with say, only down arrows. The actual expiry is often on a weekend so when that happens we have chosen the nearest trading day before:

S&P OPEX days

The table shows the number of days before or after a high point the date came and the number of days before or after a low.

The results do seem to show that there is a medium/strong tendency for prices to rally into the period around an option expiry date. This tendency has increased through the year and has been more marked than in prior years. The reason is probably that prices have been locked in a tight range all year between conflicting forces until the August 'break' downward and so small effects are often magnified in such tight conditions. Prices are now in a wider range, so this effect is likely to continue.

Our own analysis shows a large turn that was due yesterday - see the 1st October edition for details - which broadly fits this picture. Our methods sacrifice knowledge of direction for accuracy of date so we can never tell if a turn will mark a high or a low until it arrives - the prior direction then provides the missing clue. Prices (especially S&P futures) pushed into a new high for the 12-day rally yesterday which is strong evidence that a peak has either been made or will be in the next day or so. Turns are typically timed +or- 1 day and are often accurate to the day so we will soon see if this analysis is correct - please don't forget that turns are just as useful as the date recedes into the past as a successfully predicted turn event lasts for many periods.