Options-Expiration-Related Selling
Each evening we focus on the most interesting aspects for the upcoming trading day. The comments are based on observations of the nightly updates of the Stocks/Sectors and Market Bias pages. They are provided for educational purposes only and are not intended to be direct trading advice. Also, keep in mind that these remarks are made up to 12 hours in advance of the markets opening. Therefore, overnight events may alter the outcome of these observations.
Heads up, the cash S&P’s [$SPX>$SPX] tailed off (in other words, sold off from highs) late in the day to close poorly. This selling appears to be options expiration related. From what I’ve heard, many traders were holding on for top dollar (trying to make their Christmas shopping money?) on their options but then dumped in frustration. This selling may be the catalyst for some additional selling on Monday. It’s not the end of the world, just watch the S&P Globex Futures Sunday night and wait to see how they open on Monday morning before doing any buying.
Tonight, we updated our Cup and Handles List. I especially like Kansas City Southern [KSU>KSU] which is a bigger picture pattern that appears to be rallying out of its handle. However, you might want to wait for it to show continued strength and trade though (rally above) its recent gap down (a)-a sign of weakness-before attempting an entry.
On the Pullback List, several look interesting to me tonight. Purchase Pro [PPRO>PPRO], Puma Technology [PUMA>PUMA] and Optibase [OBAS>OBAS] all look poised to resume their strong uptrends. Just wait for some follow through (i.e. take out the prior 1-3 bar highs) here as they all closed off their highs. Infospace [INSP>INSP] ignored the late day sell off, closed well and appears to have resumed its uptrend.
On the short side, Mylan Labs [MYL>MYL], in the weak Drug Sector [$DRG.X>$DRG.X] (and in these markets who wants weak drugs?) appears to be a failed pullback.
Best of luck with your trading on Monday!
Dave Landry@TradingMarkets.com
PS – Reminder: Protective stops on every trade!
PPS- Shameless plug: My second installment on moving averages is scheduled to be published tomorrow under the Traders Learning Section. Check it out and let me know what you think.