The market action Friday was relatively mild for an options expiration, however the Wednesday and Thursday before have become the unwinding days over the last 5 years or so.
There was some decent action in the first half of the day, but from lunch to near the close was mostly directionless random noise that simply kept us on the sidelines. Day Trading captured 9 1/2 points on the day as I will not trade the last hour on option expiration day, it tends to be a crap shoot and we are trying to get the odds on our side not 50/50.
The probability model was pretty much on cue for Friday, which actually is impressive considering the option expiration. The model is calling for a higher consolidation day with very high odds of a sharply higher day.
The intermediate term outlook is starting to shape up a bit towards the bullish side with a very quick shift in short term sentiment. There are also some chart patterns on the daily chart indicate a potential solid bottom in place on the intermediate term and call for a run for the highs.
We also are coming into a very strong seasonal period with strong bullish days on
November 19,21,23,26,27,28 and 29th.
The market could be setting itself up for a great end of the year rally, especially considering that the market has simply been marking time since mid-June. We have only a month and a half to put together a decent year and the presidential cycle calls for a good 2007, while the decennial cycle calls for prices to be flat to slightly positive at best.
The long term probability model calls for a strong recovery in the second half of November and a very strong December possible on the order of 7-9%.
We continue to buy weakness and will begin getting set up for the possibility of a very strong end of the year rally.