Cashin On Transports And 'End Of The World' Headlines

Tyler Durden's picture

The avuncular Art Cashin is sounding a lot less sanguine than many of his market-watching peers. UBS' main man notes that traders are particularly struck by the continued weakness in the transports group (with FedEx and UPS down 8 of the last 11 sessions - and the Dow Transports down the equivalent of 300 points for the Industrials on Friday alone). "The sharp contraction in the Transport area and recent sharp drops in several trucking statistics add to growing fears that the economy may have stalled over the last four weeks," is how he puts it, but it is his cocktail-napkin charting that concerns the most.

Art Cashin. Cocktail Napkin Charting - As hinted above, the history of the week after July Expiration is not particularly attractive. Here’s how savvy veteran, Jim Brown over at Premier Investor Newsletter set it up:

Historically, even in years that don't have multiple "end of the world as we know it" headlines in the news, the equity markets decline in the week after July option expiration. Sometimes the decline is significant. Twice in the last five years the S&P lost more than 4% in the week after July expiration.

 

Obviously we can't predict market direction by looking at performance in years past. The levels are different, headlines are different, sentiment is different, etc. Charts are to tell us what happened in the market in response to conditions in a specific timeframe. Without the macro data we can't compare timeframes.

 

However, we can compare 2011 to 2012. The S&P crashed -25.6% beginning on July 22nd 2011 in response to the debt ceiling debate that came to a head in August. That decline began in the week after the July option expiration and the drop was dramatic.

 

So, does that mean we should tether the elephants? No, but we should be alert and nimble on a week with a somewhat spotty history. For today, napkins see resistance in the S&P at 1368/1371 then 1375/1378 and 1380/1383. Support looks like 1348/1352 then 1339/1342 and 1332/1335.