Friday, October 15, 2010

In 1987 Oct. option expiration Friday was a big day. Monday was worse.

SPX made a LH and LL today which in itself is a negative for the mkts for tomorrow.  The range from hi to low was 12 points and spx closed 7 points higher from the low.  It closed in the negative.  RUT had an inside day.  It had a 9 point range and closed 5 points higher from the bottom.  Today's action was consistent with option expiration balancing. Today's negative action made the calls cheaper to buy back.   Incidentally over 90% of the open interest in stock option are held by market makers.  Collectively they have enormous influence over the markets in the last days of option expiration.  Tomorrow is Friday usually the action is very boring and everything happens in the first hour rest of the day would be like they say in our CIL "watching the paint dry" day.  An old man I met today told me in 1987 the option expiration Friday in Oct. was very exciting and oex options  went from a 0.25 cents to 11 dollars.  Then the Monday was the 508 point drop.  Wow.  Things are a little different now.  Fed is on the bull side pumping so much money into the mkts it is scary.  Drops of that nature and magnitude  are beyond my forecast. The chart on the left is that of RUT.  It is in an up trending channel.  It is at or very near the median line.  That may be a turn around point.  Then there is the golden cross the 50 day mvg. avg. has just crossed the 200 to the upside.  That is considered bullish.  However RUT should come back to test 200 day mvg. avg. before taking off (If it does.) I have done a study before and found both golden and death crosses were bullish and that is because the last 20 yrs have been bullish so any study always comes back with a bullish answer.  I do not much care about these crosses.  
The chart on the right is SPX daily.  It appears to have hit resistance at the upper line of the channel and could come down.  I have a 1195 top forecast based on weekly and monthly charts sitting out there.  If the markets want to turn around right here without making higher highs it would not hurt my feelers at all. The mvg. avg. line on the chart is 77 day and I find it very effective trend indicator.
Lastly FAS chart is on the left.  Something big happened to the financial sector today.  It lost a lot of ground.  Many big banks were hit JPM, BAC and others.  It has to do with the improper handling of the foreclosures.  Looks like FAS is not going to take off like I was worried yesterday.  Not with moratorium on foreclosures and some are advocating not paying mortgages at all.  Technically that doesn't sound proper but I am not in the real estate business. The chart is hourly and FAS is back testing the 77 day mvg. avg.  When that gives we may see some swift drop.  I am really not wanting to trade on Friday unless I get more than the usual signal.

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