Three Down Days in a Row During Expiration Week Suggests Lower Prices over the Short-term

TICKscore closed at -10 Wednesday, pushing the cumulative TICKscore further
into new low territory. Keep in mind this indicator continues to suggest that
from an intermediate-term perspective, the S&P is likely to not only test, but
most likely break the March lows.

Cumulative TICK settled at -49,000 Wednesday, keeping the 20-day moving
average in a persistent downtrend. Until this average shows signs of
bottoming, it’s premature to call for much more than a short-term bounce.

Wednesday was another narrow range day for the NASDAQ. The Nasdaq100 came
within 1 point of posting an ‘NR10′ day, which would have triggered a short-
term bullish setup given that the narrow range day coincided with a 2:1
negative breadth session. See my May 26th column for details.

Noteworthy that Wednesday represented the third consecutive down day for the
Dow Industrials. Looking back at times when the Dow posted three straight
lower closes during options expiration week, there’s a notable tendency for
the downtrend to continue over the next 1-3 days. The last thirty times that
the Dow closed lower three days in a row (all during options expiration week)
are listed in the table below. Note that in 26 out of 30 cases, or 87% of the
time, there was a subsequently lower Dow close within the next three
sessions…

Dow Down Three in a Row During Expiration Week
06/18/08… ???
01/17/08… Lower Dow close one session later
10/17/07… Lower Dow close one session later
08/15/07… Lower Dow close one session later
01/19/07… Lower Dow close one session later
05/18/06… Lower Dow close two sessions later
04/15/05… Lower Dow close one session later
03/17/05… Lower Dow close two sessions later
01/21/05… Lower Dow close one session later
10/14/04… No lower close within three sessions
07/16/04… Lower Dow close one session later
02/20/04… Lower Dow close one session later
10/17/03… Lower Dow close three sessions later
07/17/03… No lower close within three sessions
01/17/03… Lower Dow close one session later
12/19/02… No lower close within three sessions
09/19/02… Lower Dow close two sessions later
06/21/02… Lower Dow close two sessions later
09/19/01… Lower Dow close one session later
08/15/01… Lower Dow close two sessions later
06/15/01… Lower Dow close two sessions later
09/15/00… Lower Dow close one session later
07/19/00… Lower Dow close three sessions later
02/18/00… Lower Dow close three sessions later
01/20/00… Lower Dow close one session later
10/13/99… Lower Dow close two sessions later
09/16/99… Lower Dow close three sessions later
01/13/99… Lower Dow close one session later
08/21/98… Lower Dow close three sessions later
12/19/97… Lower Dow close two sessions later
10/17/97… No lower close within three sessions

That 87% win rate is significantly better than the 67% at-any-time odds for a
lower Dow close within three days. The implication is that when the market
gets into a trending mode during expiration week, there’s a better than
average chance of that trend continuing over the near-term. If we bounce
Thursday, I’d be on the lookout for a resumption of the downtrend.

Categories : Archived EOD Commentary, End-of-Day Commentary

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