Short-term Outlook:  Neutral (since June 3, SPX 924)

Intermediate-term Outlook: Neutral (since April 9, SPX 843)

Heading Into Triple Witch

06/18/09 3:00 PM EST

The major equity indexes are following through on what they should be doing, by rallying a bit off the oversold conditions of the past couple of days, and their recent approach of support levels.

We have triple witch expiration tomorrow, when options, futures and options on futures expire.  Per the table below, the day of triple witch has been positive 78% of the time since the inception of the futures in 1982, although three of the last four failed to follow through on that bias.  Looking only at June expirations, there was also a positive bias, but again a caveat is that during bear markets it wasn't as consistent (not that we have a huge sample size there, though).

On the negative side, even though the indexes are rallying, we're not seeing much oomph from the volume distribution.  The Up Issues Ratio is at 61%, but the Up Volume Ratio is only 53%.  These two stats make up the Arms Index (more commonly known as the TRIN).  When the S&P has rallied at least 0.75% but the TRIN was above 1.25, it had a fairly negative connotation over the next couple of days.  As always, this may change before the close but it's what we're seeing right now.

The other signs we looked at earlier this week are still mostly in effect, but expire tomorrow.  Also, even though we have a fair number of signs pointing higher for another day, they haven't been as effective during the current bear market.

So with the market tending to struggle on the day following option expiration, and some of our intraday indicators about to tickle their overbought thresholds, I'm not sure how much of this little bounce is left, and the S&P may have some trouble if it nears 925-930, especially going into next week.

SHORT-TERM (USUALLY LOOKING AT THE NEXT 1-5 DAYS)
BULL / BEAR	SIGNPOST	% POSITIVE, #, PROFIT FACTOR	TIME FRAME	TRIGGER DATE	NOTES
	Triple-witch expiration day	78%, 107, 3.8	1 day	06/18	Overall positive bias, but 3 of the last 4 failed
	June option expiration day	77%, 26, 2.8	1 day	06/18	Only 2 positive out of 5 during bear markets
	S&P up at least +.75% but Arms Index > 1.25	37%, 27, 0.6	2 days	06/18
	Down 1% 2 days in a row	60%, 164, 1.7	3 days	06/16
	...on a Tuesday	70%, 20, 2.2	3 days	06/16
	Monday and Tuesday of expiration week both down	71%, 41, 2.4	3 days	06/16
	McClellan Oscillator (ratio-adjusted) less than -70	74%, 127, 2.3	3 days	06/16
% Positive:  the percentage of time the S&P was higher the given number of days later #:  the number of occurrences in the study Profit Factor:  using long trades only, this is the gross profit made from winning trades divided by the gross loss from losing trades (anything above 1.0 suggests an upside edge, and the bigger the better)