Impressive rally Friday leads into an historically weak week.

On Friday I said if we get a rally [on Friday] that this week could see some trouble.  The week following options expiration week has not been much to brag about lately, and Monday in particular has had trouble.

Even after a strong rally Friday, the major indices were down last week.  Over the past decade, whenever the week of expiration was negative, the following week was also negative 4 out of the 5 times by an average of -2.8%.  Looking at any month, not just September, then the following week had a 62% chance of being negative with an average return of -0.5%

Could the The Fed meeting Tuesday help the market buck that trend?  Well, the last three times we had a Fed meeting the week after expiration, that pattern of weakness that week held up as well.

More on the big rally Friday; there were 179 new highs made on the NYSE on Friday.  Sounds healthy, but if you dig deeper you can see that fewer stocks appear to be participating.  On July 11th there were close to 500 new highs made.  Even though the NYSE Composite has risen nicely since, the number of stocks in the NYSE index making new highs has been steadily declining.  More internal problems.


                           Chart provided courtesy of www.decisionpoint.com


Bonds are in an interesting situation.  In mid-August I took a shot at the F fund in lieu of the G fund as a safe haven.  The chart gave an indication that bonds could rally.  By the 1st couple of days in September the appeal wore off and I moved back to the G fund.  Bonds have since fallen steadily and we are sitting on, or close to, a support area with the rising trend line and 200-day moving average.


                          Chart provided courtesy of www.decisionpoint.com

I would consider jumping back into bonds but the sell signal on the PMO indicator (at the bottom of the chart) gives me pause.  As conservative as I have been this year the thought of losing money in bonds instead of taking the guaranteed small gain in the G fund seems counterproductive.  I'll wait and see if that indicator is a false signal as can often happen.

It should be an interesting week.  Anticipation of the Fed not raising rates would seem to be the only catalyst for the market Monday and Tuesday.  What happens Tuesday after the Fed meeting will be the tricky part.  Many times the initial move after the meeting is reversed in the following days.  So I wouldn't get too caught up in any big moves Tuesday afternoon, up or down.  It is the action in the days after that will be more telling.

With that meeting looming I will hesitate to make any predictions for the week except to say the trend has been down on these post options expiration weeks, as I mentioned earlier.

That's all for today.  Currently 100% G fund.  Thanks for reading.