S&P 500 Bullish Seasonality Could Kick In Next Week

As I mentioned at the start of the week, the market appeared to be entering a consolidation or corrective phase into June OPEX, with bullish seasonality waiting on the other side. Historically, that bullish window often begins the week following June OPEX, or as late as July 1 when viewing the longer-term seasonal trend.

In fact, we have not seen a bearish move from June OPEX into July OPEX since 2008. In some shape or form, equities have rallied into mid-July. Is this time different? Who knows, maybe it is. But unless we see a structural breakdown, I will continue to stick with the data.

From the June low over the last 10 years, the S&P 500 has seen an average gain of 3.15% through mid-July. Over the last 20 years, the average gain is 2.17%. These rallies often continue into the end of the month, and sometimes even through August standard expiration. The hit rate simply lowers a bit, and the gains tend to slow, as the strongest period is typically concentrated in the first few weeks of July.

Looking at open interest data, the call wall has shifted to the 755-strike call into the end-of-week close, as of this writing, which coincides with Monday’s highs. Post-OPEX, we see a structural shift as well. Front-week put support through July expiration moves higher to the 740-strike put, open interest balance shifts to the 750-strike, and the call wall is expected to expand to the 770-strike into July standard expiration.

That gives the market room for a rally if we can take out the May high. If that happens, I would fully expect the call wall to shift higher again, as market participants may be cautious about fading a rally with the positive seasonal data points we have seen over the last decade.

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Credit Spread Ratio Holding Near Previous Highs

If there is one thing I would keep an eye on moving forward, it is the credit spread ratio between the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares 7-10 Year Treasury Bond ETF (IEF), or the LQD/IEF ratio.

One reason we were not overly concerned with the most recent pullback is that this ratio remained clearly in an uptrend. This week, we are starting to see some movement back toward the prior highs from Q4 2025 and January 2026.

For those who do not follow this ratio regularly, this does not mean we are at risk of an immediate correction. It typically lags and can diverge for some time, even a few months. It is not a stand-alone signal. Rather, it means we should pay attention to the trend. If the ratio starts reversing and structurally shifts into a downtrend, that could eventually create a headwind for the equity rally.

Equities can continue to rally even as this ratio begins to diverge from the broader indexes. But when the bond market starts telling you we are entering risk-off territory, it is usually worth paying attention.

For now, we do not have that concern. And if the ratio breaks out alongside equities, that is all the more reason for bulls to lean into the potential seasonal rally. If it diverges, it does not mean you should avoid the rally altogether. We simply think you need to position appropriately for a shorter timeframe.

Options Market Extreme Optimism Unwinds

At Schaeffer’s, we look at a few things a bit differently. One of those things is open interest ratios. Instead of looking at put/call or call/put ratios naively, we isolate speculative action, as we have found this to be the best way to gauge sentiment. In other words, we only use buy-to-open data and remove the sell-to-open data.

Additionally, we do a few things differently than the ratios you will find in most trading platforms, such as the traditional put/call, index-only, and equity-only ratios provided by the Cboe. While the equity-only put/call ratio is often viewed as one broad measure, we prefer to break SPX and Nasdaq components apart. We also break down Russell components and sectors.

From there, we smooth the data with a 10-day moving average to reduce the noise. In this case, I am highlighting SPX components, so it will look somewhat similar to the Cboe equity-only ratio.

As you can see, we are coming off the lowest reading in quite some time. In fact, the bounce from 0.375 came off the lowest reading since July 16th, 2021, before settling at 0.53 as of last night. So, we are now entering the middling spike zones where we tend to see reversals, as we have started to see develop in equity markets.

It should also be noted that it is rare for this measure to move directly from one extreme to the other. This aligns with the view that we could see another early-July rally into standard options expiration, as we have seen in the past.

I hope you have enjoyed my week guest authoring and the opportunity to view markets through the lens of options positioning, technical structure, and investor sentiment.

Until next time, trade ‘em well.

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