Market Reprieve Still Looks Likely

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 |  Includes: DIA, QQQ, SPY
by: Andrew Crowder

My thoughts from the last few days about the market remain the same: "a short-term reprieve looks likely this week as market performance during post-options expiration is historically weaker than normal. Couple the seasonal tendencies with an overbought market and very strong overhead resistance and you can see why we should expect to see the market struggle over the short-term (1-5 days)."

A push below Friday’s lows could potentially lead to a continued move lower. In a market where every dip has been bought a sustained sell-off could be a signal of things to come over the intermediate-term.

Seasonality over the next few days is interesting. Today was actually quite bearish as the Dow, S&P and Nasdaq are only on average 38.1%, 38.1% and 47.6% of the time, respectively.

However, Thursday is significantly stronger as the Dow and S&P are higher 71.4% and 81.0% of the time, respectively.

The trading day before the extended holiday weekend is typically better than average, although I expect to see a continuation of the trading range mentality as volume should be fairly light. Overhead resistance is too strong at this juncture.

Since 1950 the market has performed exceptionally well during the week of Memorial Day. However, if we look over the last ten years the Dow has been lower 7 out of the last 11.

All of this seasonal info can be rather confusing as you are probably asking yourself, how can I apply this to my short-term trading strategy. I would not read too much into the historical precedents this time around. There is strong overhead resistance and the large-cap indices are still in overbought territory. If anything the seasonal conditions might be able to hold the market up for a few days, but I think the inevitable short-term sell-off is right around the corner. It could be tomorrow, the bearish signs are lining up that way. As for how long the sell-off will last, well, that is the million dollar question.

A push below Friday’s lows could potentially lead to a continued move lower. In a market where every dip has been bought a sustained sell-off could be a signal of things to come over the intermediate-term.