Beware Options Expiration

• January 17, 2002
• Dave Floyd

Another day
where the indices just could not manage to hold on to any intraday
rallies. Not only was the drop rather precipitous, the three major indices
closed below their 200-day moving averages. The last time the indices were in
this position was in early June of 2000, which went on to yield some wonderful
gains for short sellers and havoc for longs. On a short-term basis the market is
oversold, however it is starting to feel as though there will be some much
needed "cleaning up" to do in the P/E ratio department in the weeks to
come.

Looking at it from an intraday
perspective, I continued to find that quick "scalps" challenging, and
fared much better by focusing on setups off of the 5-minute bars. It appears
that despite a visit back from Mr. Volatility, he is not back in a his usual
splendor. I will keep the light on, however.

That being said, the first half hour
offered some great setups off of earnings-related stocks, J
P Morgan and Capital One Financial provided
a couple of decent shorts and longs. After that, the market settled into a
rather narrow trading range, 1135-1137 (KTNs from yesterday). That range kept me
on the sidelines all the way until the last hour, although there was a nice
volatility spike at 2:00 p.m. ET with the release of the Beige Book which
allowed for a quick scalp.

It looked as though the market was
going to break out of the downtrend (multi-day 5-minute chart), but that too,
like the bulls who see nothing but blue skies ahead, was quickly dashed. The
last hour of the day was just a grind down, with all the major institutions
unloading S&P contracts. It is options expiration week, so things may a get
a little hairy today and Friday, but if history is any guide, options expiration
is a crapshoot, so be selective, and if it is quiet (tight range), sit on your
hands.

Looking back at a couple of stocks I
mentioned earlier this week, Household International,
Americredit and Capital
One Financial, it appears as though the record earnings that have
been reported have given a little life to the first and third mentioned. Use a
protective stop naturally, but it does appear that the rhetoric around the
street is being turned up on aggressive accounting and pro-forma earnings. Just
today the SEC settled its charges with Trump Hotels
(
DJT |
Quote |
Chart |
News |
PowerRating), alleging that their numbers were misstated because a one-time gain
was not broken out as such. The consumer finance stocks are no stranger to many
short sellers and critics of aggressive accounting and I look forward to how it
plays out this time.

Looking ahead to today, it appears as
though that the market is going to shake off the recent sell-off and try to
recoup some ground. I believe that 1141.5 will be very
pivotal from a swing perspective, it would at least indicate a change in the
short-term trend. I see a similar levels on the Nasdaq, 1596 and 1605.

Select Gold and Silver stocks have a
had a nice run in the past few days, so look for a little pullback if the
S&Ps and Nasdaq hold on to their early gains. Names to keep an eye on, Gold
Fields
(
GOLD |
Quote |
Chart |
News |
PowerRating) and Agnico Eagle Mines

(
AEM |
Quote |
Chart |
News |
PowerRating).                                                                        

Key
Technical Numbers

As always, feel free to send me your
comments and questions.  See you in TradersWire.

Dave