Summary
Over the many years now that monthly expirations have been a cause celebre, it hasn't happened often. But it does happen. What I'm talking about are the rare instances when Wall Street and LaSalle Street lose control of the expiration gameboard. This is not a probable outcome with this week's event, but today's stock-market behavior could change that.
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Last Wednesday's research missive (10/6, "The Mother of All 2004 Failing Stock-Market Rallies?") opined that stocks were near or at an important inflection point. Although five trading days a trend do not necessarily make, the equity market has taken a pretty decent hit over the period. Between the close on 10/6, which marked recent highs, and the finish of trading yesterday, the tracking group was down an average 2.8%.
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SELECTED STOCK-MARKET RETURNS (Excluding
Dividends, Ranked In Order From 10/06/04)
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To Close on 10/13/04 From:
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10/06 09/30 2004 High 12/31
2004 2004 ----------- 2003
Close Close Chg. Date Close
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Russ. 2000 -4.0% -0.7% -6.1% 4/05 +2.2%
Value Line -3.5% -0.6% -7.8% 4/05 -1.7%
NASDAQ 100 -2.7% +1.5% -7.7% 1/26 -2.3%
S&P 500 -2.5% -0.1% -3.8% 2/11 +0.2%
Wil. 5000 -2.5% -0.1% -3.8% 3/05 +0.8%
NYSE Comp. -2.4% -0.2% -3.3% 3/05 +1.8%
DJIA -2.3% -0.8% -6.9% 2/11 -4.3%
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Average -2.8% -0.1% -5.6% -0.5%
Median -2.5% -0.2% -6.1% +0.2%
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Of the tracking group's seven components, all but the NDX came out of yesterday's trading down for the month to date. This surely does not constitutue anything approaching a "scary October." On the other hand, were the Wall Street/LaSalle Street axis powers to lose control of this week's expiration, the situation could get scarier fast. As all market history buffs remember, a bad October expiration in 1987 was the catalyst for the really ugly events that came immediately thereafter.
Something else jumps out from the above table. Which is that after factoring in the last few days' market decline, the tracking group's components again stand well below their 2004 closing highs, the most recent of which was set more than six months ago.
Time will tell whether the market just completed yet another installment in a series of failed rallies since the highs were put in earlier this year. However, the prognosis is at least fair that it did.
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