Options expiration, kangaroo tails, and next week.

Today is the final day of options expiration week.  I haven't talked about that in a while.  Probably because the market has had enough going on that I didn't think it was as much of an influence.  Now I'm trying to put the pieces together to as to why and when my indicators will turn out to be correct and I'll take any evidence I can get.

As most of you old timers know, the market does better than average the week of options expiration week (This week).  The Friday of options expiration week is the only day with a negative average return. 

We also know the market tends to be below average the week following options expiration week, and lately the Monday following options expiration week has been well below average.

We won't know until we see what happens over the few days but yesterday's action gave us a big "Kangaroo tail" which tends to signal a change in direction.  These kangaroo tails are made when the indices move strongly in one direction, usually making a new high or low, then give all the gains back (or make up all the losses when it's to the downside). 

                   Chart provided courtesy of www.decisionpoint.com 

Again the major indices ended the day heavily in the green yesterday but we are seeing a divergence with the market as a whole.  While the indices did very well, for the second day in a row there were more stocks down than up.  This will get the technical analysts' attention as to the internal weakness.  One note however.  This type of action can go on for long periods of time.  When the market finally topped out in March of 2000, the broader market had topped out many months earlier. 

I'm still very cautious.  A little disappointed to have missed the last five day's action but I still believe I am doing the right thing.

That's all for today.  Did you get a chance to take this week's TSP Talk Sentiment Survey?   Currently 100% G fund.  Have a great weekend.