Option Expiration Hasn't Been Kind

04/14/09 3:15 PM EST

It's been a mostly tough day for the indices, as they failed to hold an attempt to close the morning's downside gap.

A little more detail on tax day.  Since the inception of the S&P futures, tax day has been positive 13 times, negative 12 times for an overall average of +0.3%.  The average maximum gain during the day was +0.8% versus maximum drawdown (i.e. risk) of -0.6%.

If the S&P was down 1% or more the day before, then it was up 3 times, down 2 times with about the same risk/reward characteristics.  No edge there at all.

This is also option expiration week, which has had a slightly positive bias overall, but not so much the past few times.  From Tuesday's close through Friday's, the S&P was positive 61% of the time since '82, but the last six have all been badly negative, averaging a wicked -4.2%.  All except one lost more than -2% (and that one was -1.9%).

How does that square with what we went over this morning with regard to the market being up the past 15 years during the week following tax day?  Well, it doesn't really square, we just need to determine which one likely carries more weight.  Personally, I usually put more weight on the most recent occurrences, all else being equal.

Our shortest-term guides are all currently neutral.  They never really got to any overbought extremes over the past couple of days, except the put/call ratios that we touched on yesterday afternoon.  I don't see anything that really stands out today.

Overall, it's a pretty mixed bag here.  S&P performance following tax day has been fairly consistently positive, but option expiration as we saw above most certainly has not, at least lately.  With mixed indicators, and everything else we went over last week, I'd give a modest edge to the downside, but only if we continue to hold under 860ish.