Thursday, September 16, 2010

Options in control booth

Tomorrow is option expiration at the end of quarter that means options on futures, options on stocks and etfs and futures all expire.  Today the markets were down most of the day.  TNA, TZA , $RUT , $SPX all made LH and HL meaning an inside day.  That is generally a pause and the trend from previous day would continue next day that is up and bullish.  In today's action stocks and etfs traded closer to round numbers at which they are likely to close tomorrow.  When stocks dropped today  call options became cheaper and were bought back and puts which were very expensive were sold naked.  IMO tomorrow we will see a higher market as the remaining naked calls rush to buy stocks to cover in case the calls are called in.  There may be a slight chance that the markets open lower and move up at a snails pace all day.  The best thing to do IMO is not to play tomorrow.  
As far the signals go we have a bearish 10/20 moving average  cross. That is negative but we have seen markets do exactly the opposite so as to go back and retest the moving averages that part is positive.  DMRM is negative but is extremely close to going positive.   SPX hasn't shown any signs of getting weak  we haven't even dropped 25 points on it.  The ETFs TNA/TZA have not gone thru the DOMA 77 which is again positive.  All in all IMO we should have a positive day.  How big  depends on how many naked calls were left open. 
I have spx daily chart three weekly charts they are dow, spx and rut.  SPX daily we are clearly above the 50% line and above any immediate resistance line.  It also shows inside days.   Dow is very close to penetrating the weekly downward resistance trend line ( I think it will happen) spx is next and rut is lagging behind.  Once dow and spx break the line rut will accelerate (more speculative stocks in that index) and pierce the line.  There will be a correction for this rally from 1039 when it comes we will know but I am not going to speculate and pick a top.

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