October is the most volatile month in any year. The first and third weeks have traditionally been volatile to the downside. The second and fourth weeks have been volatile to the upside. This week is likely to bring higher prices. This is also options expiration (OPEX) week. We see the average behavior for OPEX week in October below.
Average Daily Expected Return of S&P 500 in OPEX Week in This Month (1985-2020)
Blue: Average Percentage Change
Red: Probability of a rise on that day
Green: Expected Return (Product of the first 2)
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To select some stocks for short-term trades, the following strategy is employed. The best-performing stocks in the week from the 8th to the 15th with at least 20 years of price data are calculated and are presented below. The stocks are ranked by the percentage of time periods in which the stock rose. Costco is first, having risen 74.07% of the time in this week. The return has been 1.39% and the expected return (the product of the first two numbers) is 1.03%. The stock has been trading for 27 years.
Best Performing S&P 500 Stocks from October 8th through 15th
From this list, the stocks are screened for relative strength and by dynamic cycles. The latter term refers to the most active cycles that are generating profits now.
Costco is a buy for the week. Its daily and weekly cycles are rising. Relative strength is strong and price is oversold on a daily basis. These shares are likely to rally back to the $470 area. In fact, October and November have been the two most profitable months to hold this stock.