Stock Trading: Finding Edges on Expiration Day and End of Month
Many traders look for edges not just in stock charts or in reams of price data, but in the calendar, as well. Is it better to buy stocks on a Monday? Is Tuesday the best day for reversals (ever hear of the phrase “turnaround Tuesday”)?
Advanced versions of this sort of analysis look to events like options expiration, the third Friday of the month, as a possible “calendar catalyst” to help reveal an opportunity to buy or sell stocks.
Our research into stocks – going back to the early 1990s – has yet to reveal any “day of the week” edges. And while there are a few traders – like options trader Jeff Augen, for example – who have built innovative strategies for trading around options expiration day, those strategies are not for novices.
The one area where we have found significant edges, however, is at the end of the month. As Larry Connors reports in Short Term Trading Strategies: A Quantified Guide to Trading Stocks and ETFs
We see that over the past 13 years stocks have been much stronger near months-end than they have been any other time of the month. And, stocks which have dropped a day or two near the end of the month have out-performed the averages even more.
You can read the rest of Larry and Cesar’s conclusions in chapter 11 of Short Term Trading Strategies That Work. If you don’t have a copy of the book, you can download a copy for free here.
But the implications of the research are both broad and clear. Recall the end of May? The strong rally in stocks from May 25th through the end of the month?
Not every end of month rally will be as strong as the one in May 2011. But when the right opportunities do develop, then those opportunities can be very much worth trading.
Telecoms, Retail Rally to Close Week: 7 Stocks You Need to Know for Monday
While shares of ^S^ have closed lower for a third day in a row, other telecoms like ^T^ and ^VZ^ continue to make gains. Both T and VZ closed higher for a second day in a row on Friday.
Also attracting buyers on the final trading day of the week were retail stocks. Shares of ^SHLD^ closed higher for a second day in a row below the 200-day moving average. Elsewhere, ^ANF^ bounced from a two-day pullback to close higher by more than 2%, and shares of ^MW^ gained just short of 2% following its own two-day retreat.
Among the companies reporting earnings early next week, ^WMT^ closed higher for a second day just below its 200-day moving average on Friday.
David Penn is Editor in Chief of TradingMarkets.com