Module 1: Introduction to Options
Weekly Market Update By Michael Carr, CMT
July 24, 2017
Market Overview • The next two weeks are seasonally bearish. • But weakness could present a good time to buy selected positions.
Let’s look at some charts…
Seasonals Show a Strong Peak
What Are Seasonals? • Seasonals remove the long-term trend from prices. They are basically the average log returns for a given day, week or month.
• Seasonal charts highlight factors other than fundamentals or market
sentiment. Fundamentals create long-term up or down trends depending on whether earnings are growing or contracting.
Sentiment also creates long-term moves that could be due to excessive optimism or pessimism in a sector or a company.
Seasonals Can Reflect Cash Flows • Seasonal cash flows partly explain declines in December for tax selling and rallies in late April from inflows into retirement accounts.
• This time of year the seasonal could be warning of an absence of buyers. Prices can fall because sellers dominate the market or because buyers are not available.
Seasonals Are a Warning, But Price Action Remains Bullish
A Decline is Overdue, But the Decline May Not Be Significant Days between
5% decline
10% decline
20% decline
Average
50
167
635
Current market
253
347 2092 Through 7/21/17
Previous times without 5% decline
Days
Gain
Decline
Dec 94 to Jul 96
394
40.6%
-11% in 8 weeks
Nov 63 to Jun 65
386
18.7%
-11% in 8 weeks
Oct 92 to Mar 94
370
12.9%
-7% in 2 weeks
Aug 58 to Sep 59
266
22.0%
-10% in 8 weeks
Jan 61 to Jan 62
255
18.5%
-8% in 7 weeks
Market Opinion • Remaining bullish for now. Evidence is mounting that a sell-off could lead to a significant bullish phase.
This would be surprising to many investors, which at least partly explains why it is likely.
July 24, 2017
Market Overview • The next two weeks are seasonally bearish. • But weakness could present a good time to buy selected positions.
Let’s look at some charts…
Seasonals Show a Strong Peak
What Are Seasonals? • Seasonals remove the long-term trend from prices. They are basically the average log returns for a given day, week or month.
• Seasonal charts highlight factors other than fundamentals or market
sentiment. Fundamentals create long-term up or down trends depending on whether earnings are growing or contracting.
Sentiment also creates long-term moves that could be due to excessive optimism or pessimism in a sector or a company.
Seasonals Can Reflect Cash Flows • Seasonal cash flows partly explain declines in December for tax selling and rallies in late April from inflows into retirement accounts.
• This time of year the seasonal could be warning of an absence of buyers. Prices can fall because sellers dominate the market or because buyers are not available.
Seasonals Are a Warning, But Price Action Remains Bullish
A Decline is Overdue, But the Decline May Not Be Significant Days between
5% decline
10% decline
20% decline
Average
50
167
635
Current market
253
347 2092 Through 7/21/17
Previous times without 5% decline
Days
Gain
Decline
Dec 94 to Jul 96
394
40.6%
-11% in 8 weeks
Nov 63 to Jun 65
386
18.7%
-11% in 8 weeks
Oct 92 to Mar 94
370
12.9%
-7% in 2 weeks
Aug 58 to Sep 59
266
22.0%
-10% in 8 weeks
Jan 61 to Jan 62
255
18.5%
-8% in 7 weeks
Market Opinion • Remaining bullish for now. Evidence is mounting that a sell-off could lead to a significant bullish phase.
This would be surprising to many investors, which at least partly explains why it is likely.
