Showing posts with label SP-500 Cash Index. Show all posts
Showing posts with label SP-500 Cash Index. Show all posts

Wednesday, August 12, 2009

The Day After FOMC

The Day After FOMCSocialTwist Tell-a-Friend

This chart is courtesy of our newest HFT Chat Moderator, Scott McCray.

Scott McCray, former anchor at Los Angeles Ch 22 Biz TV (the precursor to CNBC), has accepted our invitation to be a Chat Moderator in our HFT Chatroom. Scott is an active options and futures trader with great point of view on Gold, Crude Oil and Stock Index Futures. He was the first person to quote our Dollar Weighted Put/Call Ratios on the air back in summer of 2000.

Here is how you can join us to benefit from Scott's on-the-run commentary:

Saturday, July 18, 2009

Market Timing Commentary

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Wednesday, May 6, 2009

The Ord Oracle on SPX and Gold

The Ord Oracle on SPX and GoldSocialTwist Tell-a-Friend
Tim Ord

Momentum is the name of the game for now and right now most momentum indicators are still moving higher (NYSE Summation index and Cumulative advance/decline line on chart above). Yesterday the SPX jumped through the 875 resistance and for now the 875 area made provide support. If the Momentum indicators don’t turn down for near term then the market may head to the January high near 940 level. We have draw a line from the 940 range which could turn into a Neckline of a Head and Shoulders bottom where the left shoulder came back at the November 08 lows. If the SPX tests the January highs on higher volume then that would be a very bullish development and give credit to the Head and Shoulders bottom pattern. A pull back still would be expect and could pull back down where the Left Shoulder bottom which is near 740 range. There is an old adage that says “Sell in May and Go away” and may hold true this year also. We will watch the Bullish Percent index, Summation index, Cumulative Advance/decline line and MACD closely for the next clues for a downturn in the market.

Above is the Venture Composite index ($CDNX). This index has around 528 small mining companies that are mostly small gold miners along with some small oil companies. This index is a gold proxy for small junior gold miners’ performance. In the middle window is the ratio between CDNX and XAU. When this ratio is rising is shows that the small gold miners (CDNX) is outperforming the big gold miners (XAU). In generals we expect this ratio to continue to rise for the longer term. What this ratio implies is that the smaller gold companies will outperform the larger gold companies in the months and possible years to come. However, we will wait to buy these issues until the pull back is complete. See next chart.

Above is GDX. We have labeled what we believe is the correct count for Elliott Wave. An Elliott Wave 5 was completed at the February high near 38. Currently GDX is performing a consolidation in the from of an ABC and GDX is about to start the next 5 count down in the “C” leg. The “C” should end near 27 which is also the bottom of Wave 4 and an Ideal place where normally consolidation end. From the 27 level, GDX should start another Elliott wave 5 count up that should not be less then the first Elliott wave 5 count up that started in October 08. The Elliott 5 count up from the 08 low traveled 22 points. Add 22 points to the next possible low near 27, would give an upside target to 47 at a minimum. A lot of times Wave 3 of larger degree (that is what the next wave up will be) is extended. Our view is that it will reach near 57. We still expect a pull back to possible 27 over the next several weeks so we will put off any new buys until then.

Monday, November 12, 2007

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei


We have not observed the type of climatic selling one usually sees at the market bottoms. Volume is picking up each day as we discover new lower lows and volatility is increasing.

My best guess at this juncture is that we need to take out the August lows which correspond to 1370-1380 on SPX Cash Index and 12,500 on DJIA and then reassess the battlefield damage. Along the way, we have November Options X counter-trend move next week and that could create a short-term dead cat bounce. But longer term, the trend remains BEARISH and my outside target remains at about 1300 on SPX Cash Index which roughly corresponds to 12,000 on DJIA.

Thursday, November 8, 2007

Market Timing

Market TimingSocialTwist Tell-a-Friend
Fari Hamzei

First chart is our Timer Chart for SP-500 Cash Index (SPX). Notice that McClellan Osc for NYSE closed today at-211 level. This is a short-term extremely oversold signal. Given that Nov Options X is next week and we often see a counter-trend move during options expiry, odds are that we should go up a bit here into next week, make a bunch of put options go worthless (the Options MMakers have to pay rent too come Dec 1st !!), and then cascade DOWN. What is very clear now (since my last post here on Friday October 19th) is that Cumulative ADVANCE/DECLINE Line (yellow line graph) peaked this year in early June and with next two all-time highs in SPX, the Cum AD Line has setup a Bearish Divergence. In addition, we closed below its 200-day Mov. Avg.(white line graph), for the first time since Sept 10th.

Same analysis goes for the next chart: the NASDAQ-100 Cash Index (NDX) -- except that one has to be reminded that the CUM AD Line for NAZZ peaked in FEBRUARY of this year. This does not bode well for the LONGs' argument.

Next Chart is our Wyckoff chart and what I want to bring to your attention is the fact that while DJIA & SPX each made a three-weeks lows yesterday (channel breakdown pattern), DJ Trans put in a multi-month low and closed near its 2007 Open. This is, again, an ominous sign for our equity markets as a whole as the rate of economic expansion slows down.

Next chart shows Russell 2000 (RUT). Here we go again, another six weeks low (since August 16th when Uncle Ben sent some of our SPX trading brethrens into the next world prematurely in order to save Citigroup from imploding). Risk tolerance is now at a new premium not seen recently. Bids to the market should evaporate. Stay defensive.

Volatility is increasing in both NYSE and NASDAQ markets but as next two Sigma Channels charts show you, they are NOT at exhustion levels YET.

Most probably, this is where I think we will go to on this first leg down: 1422 on SPX. which corresponds to -2 sigma at this time. There is an outside chance, we may get down to -3 sigma (1383). Notice this is the Weekly Chart. So it will take time to get there. My guess is that this will be in the next 3 to 4 weeks or so. If 1383 does not hold,... well, we shall get to that on my next post.

Bottom Line: For Intermediate-Term Timing, STAY SHORT.

Monday, October 22, 2007

HOTS Weekly Options Commentary

HOTS Weekly Options CommentarySocialTwist Tell-a-Friend
Peter Stolcers

With the exception of financial stocks, most sectors have been beating expectations. Financials are not some small little part of the overall market; they comprise 20% of the S&P 500. Last week was laden with earnings releases from national/regional banks, mortgage lenders and brokerage firms. This week, we will see a much greater mix of earnings.

SLB posted nice earnings and it was down by more than $12. In fact, all of the oil stocks were hit hard Friday. Oil is near $90 and that might become an issue for the market. I still believe that energy is one of the best investments and once this pullback stabilizes it will present a great buying opportunity.

CAT posted a 21% increase in earnings; however, they lowered guidance for the next quarter. They painted a very weak picture for domestic construction. Last week housing starts fell to a new 14-year low and the Beige Book indicated weaker economic conditions across the nation.

The dollar continues to drift lower and it is making new 30-year lows against most major currencies. This will eventually translate into inflation and that will put upward pressure on interest rates.

After a day like Friday, it is easy to focus on the negative issues. I believe we could see continued weakness for the next week or two that tests some of the major support levels. The last few days of October mark the beginning of the strongest bullish seasonal pattern of the year. I believe we will work off the worries and rally into year-end.

The economic numbers are very light this week. Durable goods orders, new home sales and Michigan sentiment are the only scheduled releases. Obviously, durable goods orders are the most significant release since they reveal our appetite for big-ticket items.


They are in chronological order so that you can follow along as the week progresses. The current estimates are for flat earnings growth. I believe that will be an easy hurdle to clear. Corporate guidance is the key as traders look to the future. By the end of next week we will have a much clearer picture.

Corporate earnings have been strong, the unemployment rate is low, interest rates are low, tax rates are low, inflation is in check and global expansion is helping us through this rough patch. All of these conditions might be on the brink of changing; however, I don't believe that they will deteriorate before year-end.

I am patiently going to wait for support to be established and then I will buy this dip. I do not want to try and short this market for fear that I will get caught in a whipsaw. I got caught short last March and I learned from my mistake. In August, I bought into the weakness and took profits during the snap back rally.

During the last 3 quarters, the first week of earnings season has started off poorly. I expect a better week ahead.

Editor's Note: To take advantage of our high performance Options Trading Service (HOTS), click here.

Friday, October 19, 2007

Market Timing

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Fari Hamzei

I wrote a piece for FOX biz channel around 830 am PDT this morning, about my reasons why DOW should close about -350 to -500 today. Robert Gray, formerly of Bloomberg TV, quoted us near the close.

As a service to our loyal readers, here are my bullet points (part of these points were posted in our SuperPlatinum Virtual Trading Room in real time). Tomorrow in our Saturday Class we will explore these crucial issues in more detail.

1) expiration week is a counter trend -- we have been climbing a wall of worry since Aug 16th -- SPX hit massive resistance at MR1 Level (Monthly Resistance Level One) five times between October 8th and 15th and failed. We've had divergences between SPX and NDX at new highs with their respective cum advance decline lines -- see our Timer chart below.
2) Crude Oil is at ~85 to 90 USD per barrel.
3) Benazir Bhutto returning to Pakistan -- I wrote about this in early Aug on our Blog -- they have 40 confirmed nukes -- AQ is HQ'd there.
4) comrade Paulson putting his foot in his mouth on SIVs.
5) dollar trashing by Uncle Ben via pre-mature easing.
6) DJ Trans telegraphing massive slow down of the US Economy. See our Wyckoff Chart below.
7) 20th anniversary of Black Monday falling on October Expiration Day.

Have a great weekend......

Friday, September 21, 2007

HOTS Weekly Options Commentary

HOTS Weekly Options CommentarySocialTwist Tell-a-Friend
Peter Stolcers

Last week, the Fed pulled a surprise move when it lowered interest rates and the discount window rate by .5%. The S&P 500 futures rallied 25 points instantly. It was able to add to those gains on Wednesday and prices are holding firm.

I have been opposed to the Fed lowering interest rates because all of the economic data suggest "full employment" and moderate growth. The exception to this is housing, which only accounts for 5% of our GDP. If the economy continues on a moderate growth path, this ease will translate into a new record high for the market.

Don’t be fooled, on a relative basis the market is not near an all-time high. Once the Fed’s actions were revealed, the dollar got hammered. The market is dollar denominated and a foreign investor buying the SPY would pay much less for those shares now than they did at the prior high two months ago. For anyone who has recently traveled abroad, the decrease in our purchasing power is blatantly obvious. A weak dollar is an inflationary event and it is one reason why dollar denominated commodities like oil and gold are increasing in price. For the first time in 31 years, the US and Canadian dollars are trading at parity.

Enough about the dollar, I’m concerned that the Fed sees the big picture and that economic weakness lies ahead. They have been interviewing top CEOs and gathering unique data to gauge what lies ahead. Chairman Bernanke has been a steadfast inflation fighter and he had to be concerned to take such dramatic action. The market would have been satisfied with a .25% ease combined with help at the discount window. He had the option to wait for further evidence that the economy was slowing, but he didn't.

There aren't any earnings announcements worth mention next week so the market will look to the economic releases for direction. Consumer confidence, durable goods, GDP, personal income, core PCE inflation and Chicago PMI are on deck. Those numbers are like looking in the rear view mirror and they may give the appearance that all is well. Consequently, the market is likely to rally and test of the all-time highs this week.

The only way to trade this market is to stay long commodity stocks and equipment manufacturers that generate more than half of their revenues overseas. There are also select technology stocks that I like. I fear that the market could hit another "air pocket" once the first weak economic number hits.

Editor's Note: To take advantage of our high performance Options Trading Service (HOTS), click here.

Tuesday, August 28, 2007

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

We have four charts for your review this evening: SPX, RUT, XLF & XLE.

Let us start by stating that market action today, unlike two weeks ago, was not marked by forced liquidation, but rather it was an act of deliberate selling by many players. SP-500 Index (SPX) in the last 30 minutes of trading touched its last week's lows while Russell 2000 Index (RUT) took out its last week's lows in the first hour of trading this morning.

The next major support levels for S&P-500 Index (SPX) are located at 1421 (MS1) and 1387 (MS2). The fact that our coveted CI Indicator crossed its signal line below the ZERO LINE is very ominous. Today SPX also crossed below 200 day and 20 day Moving Averages. Down Volume to Up Volume on NYSE was almost 26 to 1. This tells us that last week the big players bid the market up to get out of their troubled positions and now they are getting ready for a big push down. A top ranked technical analyst on the Street and a contributor to my book, Master Traders, on Monday August 20th, wrote us that his SPX target for the bounce from the August 16 low is 1480. Four trading sessions later, the bounce stopped 60 cents below his target last Friday !!

Another technical analyst for whom I hold tremendous respect for (yes, he works for a bulge bracket investment bank) told us two weeks ago that his SPX downside target is 1300. If you look that how Russell 2000 (RUT) has behaved in August (never crossed its 200 day Moving Average during eight sessions during each of which it had a chance to do so). Because RUT normally leads the SPX, the RUT price action today means, the 1370 retest on SPX is a given, and the 1300 target for SPX is more plausible now than ever. Worth noting is that the next major support for RUT is 745 (MS1) which on the way up last year was a key resistance level.

The next chart really drives it home. Financials are in trouble after MER downgraded them today and when 20% of SPX is in trouble, we all are in trouble. CFC problems are far from over and if our calculations are right, we have not seen the worst of XLF. The next support is its MS1 located at 31.56 which it bounced from on August 16.

Of course the Market won't sell off in a big way till the mightiest fall and that honor goes to Mega Oil. Here we present you with its ETF (XLE) which closed today at 66.88, pretty close to its MS1 at 66.5. Keep an eye on that 10% of SPX, with key support at 64 (MS2) and its 200 day MA at 63. Once these levels are broken, the free fall should begin in earnest.

Have a great Labor Day Weekend.........

Editors' Note: MS1 stands for Monthly Support 1

Monday, August 20, 2007

Have You Hugged Your T-Bills Lately ??

Have You Hugged Your T-Bills Lately ??SocialTwist Tell-a-Friend
Jason Goepfert

There are two defining moments from late last week - an incredible rush to safety, and a washout in terms of market breadth.

There are many ways to watch for extreme moments of risk-aversion. One sign of that came from Rydex mutual fund traders, as they were three times more likely to invest in a "safe" fund than a "risky" one. But in the bigger scheme of things, Rydex funds are small potatoes. The Treasury market is not.

And in that Treasury market, we saw a huge rush to one of the safest of all instruments - the three-month T-Bill. Over a two-day period, the yield on T-Bills dropped by more than 20% (near Thursday's nadir), which means that there was a big demand for those Bills. Like all credit, when demand is strong and supply is restricted, then prices rise and yields fall.

That two-day decline was one of the steepest in five decades. Using data from the Federal Reserve for secondary market rates on T-Bills, I could find only two other times since 1950 that yields dropped so much in such a short period. Those two times were February 24, 1958 and September 17, 2001. Both led to an imminent halt in selling pressure in equities (or very close to it in 2001), and the S&P 500 was about 8% higher a month later both times.

That rush to safety was accompanied by traders dumping shares at a record rate. NYSE volume set a record on Thursday, and the past two weeks have seen several days with volume nearly as high. Large share turnover in the midst of a decline is typically a mark of a bottoming market.

Going back to the 1960's, I looked for any time total NYSE volume was at least 50% above its one-year average for at least five out of the past ten sessions, AND the S&P 500 was at least 5% below it's highest point of the past year. Looking ahead three months, the S&P was positive 90% of the time (92 out of 102 days) with an average return of +7.6%.

Much of that volume was traders wanting to get out of their shares, and selling at any price. By Thursday, a phenomenal 1,132 stocks had hit new 52-week lows, the second-most in history.

Expressed in terms of total stocks traded, that comes out to 33%. There have only been three times in the past 20 years that more than 30% of stocks hit a new low on the same day - 10/19/87, 8/23/90 and 8/31/98. Those were exceptional times to initiate intermediate-term long positions.

Also near a couple of those dates, we saw extraordinary one-day reversals on heavy volume, and brokers exploding out of one-year lows…just like Thursday. Fundamentally, there are many reasons to expect more bad news and possible selling pressure to come. And technically, the markets look quite weak. But looking at some of the intangibles, a good argument can be made that despite some likely short-term testing of Thursday’s low, that testing should succeed and result in a one- to three-month recovery.

Monday, June 11, 2007

Outlook on Gold, US & Global Equities

Outlook on Gold, US & Global EquitiesSocialTwist Tell-a-Friend
Frank Barbera

Our medium term Outlook on Gold is now bearish, and we are bearish on Gold Stocks. Over the next few months, we expect Gold to fall below $550 to the low $500 area, where another long term bottom should develop.

The US and Global Equity markets are also completing major topping patterns, but should manage to hold up on the current rally for another 5 to 7 days. The S&P has a near term target of 1525-1530, and massive resistance at 1540-1550. We believe that within a few short weeks, the Chinese Shanghai Composite Index will begin an extended, multi-week collapse on the order of 40% or more. That decline, when it unfolds should trigger heavy selling in US Cyclical stocks, and in stock markets around the world, with Brazil, Mexico and Germany especially over-extended. The S&P could tumble initally on the order of 10 to 12%, bringing the index back down to the vicinity of the mid-March lows near 1360, possibly somewhat lower. Readers are advised to assume maximum defensive positions and seek the safety of cash.

Thursday, June 7, 2007

Timer Digest: We are SHORT SPX from 1490.72

Timer Digest: We are SHORT SPX from 1490.72SocialTwist Tell-a-Friend
Fari Hamzei

In the chart below we are using the Weekly SPY (as a proxy for S&P-500 Cash Index).

The run-up in S&P-500 Cash Index came to a halt this week. This prompted us to SHORT SPX for Market Timing purposes. We have informed Timer Digest of our decision this evening.

The next two charts use Daily Bars. The first one shows our Sigma Channel Indicator. Notice how the Zero (0) Sigma line, which gave us an uptrending support line since early April, was broken decisively today. And, we closed at -2 Sigma Level with a massive spike in down volume. As a matter of fact, NYSE up volume was 103 Mil vs its down volume of 1.71 Bil (16.6 to 1).

The last chart is also daily but we have plotted our Monthly Support, Pivot & Resistance Levels Indicator on it. Yesterday Close (1517.38) was a tad above the Monthly Pivot (1514.29). As we projected in our Virtual Trading Room today, the Today's Low broke the Monthly Support One (1) at 1493.03 and closed at 1490.72.

Tomorrow we will discuss additional data points and inputs that were incorporated in our decision to go SHORT SPX. While this sell off may be short-lived, we expect it to be fairly violent.

You may join us at no cost by using our ONE WEEK FREE ACCESS Link located at

Thursday, May 31, 2007

Equity Index Update

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Brad Sullivan

The index markets reversed overnight worries from a Chinese decline and pushed significantly higher. In fact, the SPX joined the All-Time High Club as the index finally pushed through the 1527ish previous high close registered in March of 2000. Now the index has the intraday highs of 1552 and change in its sights. Without question yesterday’s sharp move caught many traders flat-footed. Given the China news, and the fact that this time there was a catalyst for the decline (raising the stamp tax on stock transactions from 0.1 to 0.3%) it should have come as no surprise that the indices were not going back down the Feb. 27th path. However, to predict new highs across much of the board was not something many were thinking when the SPM was trading around 1516.

And there lies the proverbial rub of the index trade in our current climate. By most measures we are overvalued/stretched and should be looking for a moderate decline. However, the indices keep on chugging higher and for those fighting the tape it has been a painful experience both psychologically and financially. As I pointed out last week in a couple of comments, the indices were stretched on a variety of readings…normally this plays out 1 of 2 ways: either a sharp decline or a moderate decline followed by sideways action. Neither of these scenarios is playing out. The decline was shallow, but only a couple of sessions of range oriented action followed. This leaves me with a scenario that rarely comes into play and that is the blow-off rally. Simply put, the DJIA and SPX have POTENTIAL to stretch this rally significantly higher throughout the summer. There are now 3 options on the board and it should make for some very interesting trading over the next 6 to 8 weeks.

For today’s session here are the levels in SPM I am focusing on: The first area of resistance should be found between 1535.50 and 1537.50…above this look for a push towards 1541. I would be looking for the zone between 1540.50 and 1542.50 to establish a moderate short line. Above 1545 on a 30 minute close, the white flag is waived on this transaction.

On the downside, support should be found in our old resistance zone of the low 1530’s…essentially look for support between 1533.50 to 1531. If this zone fails to hold, look for selling to accelerate towards 1528. Support is found within the 1529 to 1527 zone and again from 1525 to 1524. Clearly any move towards this area would leave many scratching heads.

All told, with the month end and tomorrow’s employment report, I would asses the odds of a significant move higher or lower as remote. Keep it close to the vest, but be ready to play if something changes during the session.

Wednesday, May 23, 2007

Equity Index Update

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Brad Sullivan

The indices continued their divergent path in yesterday’s session and for those that use one index as a lead indicator to trade another index, it has been nothing but a painful existence over the past couple of weeks. Indeed, the only game in town right now is the spread trade between the mega-caps (DJ and SP) versus the small caps (ER2) and to some extent the NDX. As I outlined earlier this week, the volatility has been nothing short of amazing in these spreads, and the highest levels I have seen since the run higher in 1999 and subsequent collapse in the NDX. Rumors continue to abound about the trade over the last two weeks in these spreads, but, the only thing that really seems to matter is what we examined the other day with a couple of spread charts. Simply put, it was “mean-reversion” time. The last 2 sessions have been a painful reminder of how these spreads can operate – at least for those that stayed too long at the party. I have included an updated table that I first put into Monday’s update and a chart to show the extremes.

This morning, the SPM is trading higher on the heels of another +1% rally in China (why I’m not long the great wall I’ll never know) and more all-time highs in the DAX. Currently the SPM is trading at 1531.50, up 6.50 on the session – just shy of yesterday’s high and contract highs. Without any hint of economic today, save the DOE weekly inventories, one has to wonder -- is today finally the day the SPX takes out its All-time closing high?

The SPM was a pretty interesting trade yesterday as the market attempted to consolidate below my key 1528 level, but could not muster any sustained selling and gradually firmed up between 1527 and 1529. Lunchtime provided a bid and pushed the market a bit higher…however, by the time the final hour was underway the index could not hold onto the gains. In the final 30 minutes of trading the contract was sold into the bell, producing a new session low at 1524.75. Much of this seemed to be spread related and day trade long selling. This theory has gained traction in my mind with today’s solid open higher. Now the question becomes…where do we go from here?

Here are my levels for the SPM today: On the upside…resistance should be found between 1531.50 and 1534.50…if we can get a 30 minute close above this zone it is bullish. However, I do not think one need’s to chase ‘em up. Instead wait for a move back into this zone (31.50 and 34.50) to build up a long position that pushes towards the 1538 level. Stopping points along the way should be 1535.50-1536, then strong resistance between 1538 and 1541. IF THE SPM TRADES ABOVE THE RESISTANCE ZONE (31.50-34.50) AND DOES NOT COME BACK IN…CANCEL THE IDEA OF BIDDING IN THAT ZONE. In other words…if we trade up to 1538, I don’t want ‘em back at 1532.

On the support side…1530-1527 is a transition zone. It should provide support, but, not support that one utilizes to get long. 1526 to 1524 remains key support and should be used to establish buying points…below this 1522.50 to 1520 is CRITICAL. Only a 30 minute close below 1520 turns the switch to “sell” and even then it most likely will be tomorrow or Friday that the trade comes to fruition. In other words…don’t chase lows below 1520 to establish a position.

All told, volatility is already on its holiday and one needs to be cautious in this trading environment.

Friday, May 18, 2007

SP-500 Cash Index 7 Weeks of Higher Highs

SP-500 Cash Index 7 Weeks of Higher HighsSocialTwist Tell-a-Friend
Jason Roney

This is note worthy:
A) SP 8 higher lows weekly into expiry. Monday close down 4 of 4. week close down 3 of 4.
B) SP just 6 higher lows into expiry. Monday close down 78.5% 15 times and week close down 73.33%.

Editors' Note: This was posted in our Virtual Trading Room on Thursday, May 17th about 1106 PDT.

Wednesday, May 16, 2007

Equity Index Update

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Brad Sullivan

The index markets suffered a lunchtime reversal from higher levels in action that was whippy and aggressive. Volume flows were heavy, particularly around certain price zones in each contract. After the market pushed lower from its lunchtime high prints, the selling was reminiscent of the old days (think mid 1990’s) when the markets would have big swings during expiration week. The last couple of years volatility during expiration week has been infrequent…however, when it has appeared the moves have been violent and typically on the downside. I recommend caution on any rally buying for the remainder of the week.

Yesterday’s trading action continues to show that we are in a trading range. How long we stay and the size of this range remains the proverbial X factors. However, it is worth noting that given the sharp rally over the past 8 weeks (wasn’t it just March’s expiration week when the indices printed collective lows during Wednesday’s lunch hour?) we SHOULD expect some type of sideways to downside action. In fact, that downside action has been playing out in the Russell 2000 and NDX. The Russell is essentially trading at UNCH for the month and the NDX is holding just above its flat line level for May. Both indices are severely underperforming against the SP and DJIA. If this rotation out of small and into large caps continues it should bode very well for higher ground in the world of mega-cap indices.

Here are today’s levels for the SP : On the upside…Resistance should be found between the 1510.50 and 1512.25 zone. I suspect that this zone will find many willing sellers that are looking to capitalize on yesterday’s selling from contract highs. A 30 minute close above this zone brings us back into the critical 1515 to 1518.50 zone. Only a 30 minute close above this area will turn the dial to “buy”…however, at the risk of sounding like a broken record, DO NOT CHASE ‘EM UP HERE. Wait for the trade to settle back into the 15-18.50 zone and attempt to position build for a sharp bid into the close of trading. If unable to build the position, wait for the final 30 minutes before playing the “chase” game. In this scenario we should see a continuation move higher into the close of trading. The levels would be a guessing game, but I think 1525 to 1526.50 would be worth targeting.

On the support side of the equation, 1507 to 1504 remains my CRITICAL SUPPORT ZONE. Any 30 minute close below this zone should produce a CHOPPY downward push towards 1496. Be on the lookout for violent program trading spike moves both higher and lower in this scenario. In other words…1502 new low, 1505.50 trade, 1501 new low, 1504 trade is a sequence that could play out. Accordingly, one should get the chance to build a short position on any 30 minute close below the zone, in the actual zone itself at a later time (1504-1507). HOWEVER, I would look to put on a partial position on the first 30 minute close below this zone – at levels lower than 1504-1507 – in case the above scenario does not play out. If the market moves above 1510 after creating a 30 minute close below 1504, then all bets are off. On the way to 1496 look for support points at 1501.50-1500…1498.50 and 1497.

I have included three charts today…one 5 minute SP mini chart over the last 4 sessions with comments, a NDX daily chart and the spread chart that keeps on giving of long SP-short Russell 2k.

Saturday, May 12, 2007

HOTS Weekly Options Commentary

HOTS Weekly Options CommentarySocialTwist Tell-a-Friend
Peter Stolcers

The market is seeking a catalyst. 10 days ago the S&P 500 was at this same level. In that time we have seen a decent round of earnings and they have exceeded expectations. With most of the numbers "in", the earnings growth rate is over 6%. That should be enough to sustain the uptrend. As I mentioned last week, I expected choppy trading and a negative reaction to the Fed’s unchanged rhetoric. The initial bullish reaction was reversed Thursday and the market also took issue with the weak retail sales numbers. Over 80% of the retailers missed their sales numbers. Friday, we got a bit of inflation relief from the PPI. The core inflation rate increased a modest .7%. In the grand scheme of things, the market is just chopping around looking for a piece of news that it can sink its teeth into. One day the economic releases show strength; the next day they show weakness. Another day the releases show rising inflation and the next day they show a decline. Now that the earnings season has ended, the market will place greater weight on the week to week economic releases. These knee-jerk reactions will mean little and the market will zigzag until it has something substantial to digest.

Per normal there is a chance that we will wake up Monday morning and read about a new merger. M&A will kick start the week and given the recent rally, the path of least resistance is up. The market is also likely to benefit from bullish option expiration activity. It's easy at this juncture to get lulled into thinking that the market can only go higher.

This is a time to be cautious. The market is "sleepwalking" its way higher. Thursday we saw the dramatic affect that one negative piece of information can have on prices. It will take two or three consecutive pieces of information to topple this market. We will use a series of lower closes and a technical breakdown as our guide. In today's chart you can see that minor support held Friday. The uptrend from March is also still intact. The steeper and shorter term the trend line, the easier it is to violate. I don't give this trend line as much credence as I do the horizontal support levels at SPY 148 and SPY 146. This week I have a very unique stock to add. I went fishing and once I reeled in the catch, I liked what I saw.

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