Option Expiration and Time Symmetry Will Lead to Volatility This Week
Kevin Haggerty is a
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Markets for seven years. Would you like Kevin to alert you of opportunities in
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The SPX continued to bounce off the 1546.72 Thursday low and closed Friday at
1561.80 (+0.5%) and +0.3% on the week. The $INDU was +0.6% and finished the week
at +0.2%, while the QQQQ was the leader at +1.6% and +1.2%. It was another light
NYSE volume day on Friday at 1.1 billion shares, with the volume ratio 61 and
breadth +769. The 4-ma of the volume ratio and breadth are neutral at 56 and
+283. The energy and gold stocks were the week’s leaders with the $HUI +4.6%,
OIH +4.0% and XLE +2.6%, while at the same time, the BKX was -2.3%, $TRAN -1.2%,
PPH -1.2% and $XBD -0.5%. The $US Dollar remains at the lows, closing Friday at
78.21, while $GOLD (EOD), made new highs to 759.30 on Thursday and closed the
week at 753.80. The $US Dollar will go lower, and $GOLD higher. The Fed will try
to avoid a rate cut in fear of a $US Dollar meltdown, so like the PPT in the
stock market, expect to see some "funny economic" numbers that will be the Fed’s
attempt to keep the $US Dollar from tanking. The subprime problem and
credit/liquidity crisis has not gone away, and commodities like crude oil,
heating oil, unleaded gas, and gold have made significant gains, as have had
hard commodities like lead, tin and copper. The inflationary recession seems to
be in full swing, and the money supply (M3) is expanding at record double-digit
rates.
The major indexes are up for 5 straight weeks, and this week is also an
option expiration, in addition to being a key time week, so expect some
volatility. There are some significant divergences in the market, like the NYSE
advance/decline line, which in fairness is skewed by the significant decline in
financial stocks. There is also an obvious negative divergence in the percentage
of NYSE stocks above their 200-day moving averages. At the 2/22/07 SPX 1461
high, 85.40% of stocks were above their 200-day MA, and on the 7/16/07 1556 SPX
cycle high, it was 68.52%, and on the 10/11/07 1576 high, it was only 57.45%.
This obviously points out the narrow universe of stocks that are pushing the
SPX/$INDU higher, with lots of buy program acceleration help by the PPT. The SPX
cap-weighted index made a new high to 1576, but the SPX equal-weighted index has
not taken out its cycle high, so this ties in with the declining percentage of
stocks above their 200-day MA. Also, the $TRAN is fighting to get above its
200-MA, hurt by crude oil which hit an all-time high Friday at 84.05.
The most significant current market news is that some of the major banks,
urged by Treasury Secretary Paulson, might set up an $80-100 billion fund, to
essentially support the asset-backed commercial paper and the asset-backed
mortgage securities markets. That tells you there is no real current market for
these securities, but it is a positive step to help the liquidity crisis, should
this bail-out work. I can remember the initial Fed statement in February this
year, about how sub-prime was just an insignificant problem relative to the
entire economy, and didn’t expect it to spread. Well, it obviously has not
worked out that way, and if you’re trying to sell your house, you know what I
mean.
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Have a good trading day,
Kevin Haggerty