Independence Day marks the onset of the summer vacation season, although to a much lesser extent in 2020 due to global travel restrictions. While I’m stuck in the sweltering heat of Spain Tony managed to plot his escape from Chicago to some camping ground near Kern River, CA. I have very nice memories visiting there and one of the main advantages is that Sequoia National Park with its higher elevations and cooler temperatures is only three hours away.
I rarely hazard lofty predictions as most attempts in foretelling the future usually end in tears followed by monetary losses. But having been around the block a few times I do pride myself in recognizing a glaring bear trap when I see one. Which is why I offered this to my intrepid subscribers last Monday:
If you had asked me a few years ago which week of the year would be the highest grossing statistically speaking I would most likely have pointed at late November or December. Well, close – but no cigar. After running the stats I was amazed to realize that the biggest winning week happens to follow one of the quietest of the year during – right during the height of the summer vacation season. What gives?
Thus far week #26 has played out exactly true to form in that it has remained flat as a pancake with a bit of obligatory but listless whipsaw in both directions. If we take a step back and look at the bigger picture it’s also not overly surprising to see things slowing down a bit after a two month long face ripping short squeeze that ended up demoralizing even the staunchest of beartards.
If there’s one thing I hate more than hospitals it’s wasting hours waiting at the hospital for no apparent reason. I’ll spare you the gory details but if you ever have the choice of departing this mortal coil or the Spanish healthcare system choose death without hesitation. Anyway, this post will be brief but direct in that it’s aimed at the collective silliness I keep encountering in the comment section.
We’ve almost made it through the seasonal summer solstice sell off, which it shall be known as henceforth since it has a nice ring to it. Week #26 puts us right into the middle of the year and true to form it’s a complete coin flip statistically speaking with a net zero Sharpe ratio and a 50% win/loss rate.
Since Monday equities have literally run a grand tour on our weekly expected move scale. With one session remaining the big question for most professional option traders today is whether or not we’re going to remain in range or if we’re going to close the week outside. The reason for that may not be apparent to most retail traders, so let me enlighten you.
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One of my long term readers decided to yank my chain a little yesterday by facetiously asking what this week’s expected move (EM) should have been for the SPX. Looking at the outlier moves we’ve seen lately it’s easy to assume that EM is a silly antiquated concept that should at best be ignored. Well I’m not at all sorry to say – you would be horribly wrong.
Welcome to the fourth most bearish week of the year, at least statistically speaking over the past 70 years. Seasonal bias has been touch and go over the past few years but it didn’t take a crystal ball to suspect that we’d be seeing some sort of correction during the onset of summer, and in particular after a record snap back rally that propelled us 1000 SPX handles in less than three months.
If you recall my Monday post then you probably remember that week #24 historically closes flat but can produce quick wipeouts typical to what we see in low participation summer tape. And just looking at my trusted Zero indicator signal yesterday made it crystal clear that the bots were running the session. Instead of relying on complex indicators or silly wave counts let’s instead look at what price is telling us.