Expecting Weak Period Post Options Expiration

Since the low established in July 2006, the S&P (SPY) has been higher during expiration week 10 out of 11 times. If the market lives up to its recent historical precedent, I would expect to see the historically weak period of post options expiration kick in.

Barring a major setback in the upcoming inflation reports over the next two days, the market should be able to continue its winning ways again this week. However, I do expect to see another test to the downside next week. Maybe not to the recent lows, but at least a decent move to the downside, particularly if the market can reach an overbought state going into the week of post expiration. Also, the week after June Triple-Witching has seen the Dow lower 15 out of the last 17 years.

Overbought/Oversold levels for June 13, 2007

SPY - 53.9 (neutral)

DIA - 53.4 (neutral)

IWM - 46.9 (neutral)

QQQQ - 55.0 (neutral)

GLD - 39.7 (neutral)

OIH - 60.4 (neutral)

Disclosure: none