The ‘Witching’ Time
As triple witching begins, we look for a low for the week on Tuesday or Wednesday, followed by a good rally into Friday. As for S&Ps, futures were trading up 320 on Globex at 1487.70 on extremely light volume. We have a gap still between 1477.50, which was Friday’s low, and 1474. Also at 1474 is the 50-day moving average and the high from June 1. 1471.40 is a 33% retracement of the up move from 1392 to 1511.
Below this, 1465.90 is the 100-day moving average. For today’s trade, we have a neutral band between 1482 and 1487. If we can hold above this, look for a rally into the mid 1490s.
We should have resistance between 1495.50 and 1498. If we were to get above this, 1503.50-1505 is our next critical resistance. Any trading above that should lead to a test of 1510-1512. On the downside, if we trade below our neutral band we are looking for the gap area to be filled at 1473.40. If this area does not hold, we see support between 1467 and 1466. Below that we look for a quick drop to 1460. Any close on an hourly basis below 1460 will target an eventual move to 1440.<2>The 2- to 6-day moving averages are congesting between 1487 and 1490.50. This is an unusually tight zone. We need to overcome this for a bullish move to 1511. With last week’s sideways direction and this week’s expiration, we feel a substantial move is near, and overall we continue to think it will be to the upside, which eventually could lead us up to 1538. However, during expiration weeks, typically Monday through Wednesday morning are sideways to lower, followed by sharp rallies.
Taking a look at last Friday, we saw a very quiet trade, with NYSE trading only 783 million shares. Overall picture was neutral. The S&P 500 and the Dow had small declines, while the NASDAQ and the Russell 2000 had gains of over 1%. For last week, the NASDAQ was up 1.6%. The Russell 2000 was down 2%. The Dow was down 1.7%. S&P 500 was down 1.4%. Coming on top of the large rally seen the week prior, last week can be viewed as a consolidation week.
One slightly negative note was that the S&P 500 cash closed at a one-week low on Friday, and financial stocks continued to trade on the weaker side. Some of the more bullish factors were Friday’s PPI report, which was “friendly,” and the continued strength in large-cap tech stocks — especially semiconductors.
Meanwhile, this morning NASDAQ was trading up 40 handles at 3854 this morning. Friday’s settlement at 3814 was a 6-week high settlement. Friday’s pit session high was 3855; 3900 was a high made in Globex on Friday. Again, we are approaching critical resistance areas. 3917.50 is the 50% retracement of the year-high to year-low move seen between March and May. 3920 is our 2-month high settlement, which occurred on May 1. 3950 was the high on May 1, and 3956 is the 100-day moving average.
Friday’s low was 3785, and we still have the leftover “Employment Friday gap” between 3675 and 3567.50. The longer these gaps stay unfilled, the more bullish they become. If we can sustain trading above a resistance band at 3835-3850, we look for a test of the 50% retracement.
If we get below this band, look for a test of 3780. If this support fails, 3755-3747 is the next target, and only an hourly close below these levels would turn the market to short-term bearish and should lead to an eventual test of 3660 and possibly an attempt to fill the leftover upside gap.
The Dow was called to open 30 points higher at 10,813. We had a low on Friday of 10,735 as the market continues to lose ground as the old economy stocks are seemingly back on the shelf while the tech stocks regain favor. We are still in a relatively tight trading range, and have retraced nearly 50% of the up move of the last two weeks.