Options Expiration Week

Don’t blink, don’t sneeze, certainly don’t yawn or, you will miss the next turn of the market. The behavior of this market has been nothing short of incredible as it swings between complete elation, for a short while, and then moves total despair, all within a two hour time-frame. We are up one minute, down the next, up and down we go. All we seem to need is a pogo stick to complete the act and enhance trading. Traders sport blood-shot eyes and really frayed nerves. Sleep is allowed on Saturday nights, because nothing is trading as yet, Sunday evening back to the machine which has now taken over everything.

Now that we have passed the November 15 deadline for removing funds from certain hedge funds for the year 2008, these funds should have a better grasp of what is left for investing. In advance of that November deadline many funds cashed out so that they would be able to fund the redemptions. Now that this is past, we should see some
money, if there is any left, put back to work in the markets. Remember, funds can be short as well as long or may be a combination of anything. That is the fun with hedge funds; you have no clue as to what is going on until you get the statement.
This is an options expiration week; oh joy more volatility to add to the party. It is possible that many investors have closed their books for the trading year of 2008 and hunkered down in front of the wood-burning stove to dream of the “good ole days.” Although gas, crude oil and natural gas are all trading much lower than they were
just a few months ago, budgets are tight enough to cause some to use wood-burning stoves as an adjunct to the conventional heating methods. Shopping, forget it!
Although many stocks look cheap at these levels, we wonder if they will be cheaper tomorrow. We see seller fatigue along with a buyer strike. That means that the market, although somewhat washed out, continues lower. Notable was the 3:00 sell-off seen in the Friday session. It seemed as though the longs wanted to get out of their positions in case something bad happened over the trade-less weekend. This is typical of a nervous market, and this one is really nervous.
Monday: October industrial production and capacity utilization is released at 9:15 and Fed Governor Duke speaks.
Tuesday: October PPI is released at 8:30.
Wednesday: October CPI is released at 8:30, October housing starts are released at 8:30, the Fed releases the minutes of the previous meeting, the Bank of England releases the minutes of its previous meeting and Fed Vice Chairman Kohn speaks.
Thursday: October leading indicators are released at 10:00, November Philadelphia Federal Reserve Survey of Business Conditions is released at 10:00 and St. Louis Fed President Bullard speaks.
The US Dollar Index closed near the lows in the Friday session generating a mechanical sell-signal. All the indicators that we follow herein are issuing a continued uniform sell-signal. The 5-day moving average is at 87.264. The top of the Bollinger band is at
88.586 and the lower edge is seen at 83.971. Although we have a very solid sell-signal on the US Dollar index, we remain in an uptrend. The uptrend line is at 86.225 for the Monday session. The weekly chart shows a very overbought market. We are getting a sell-signal from the Thomas DeMark Expert indicator and our own indicator, both the stochastic indicator and the RSI are overbought and going sideways. The chart looks like a pole. The monthly chart is overbought and we are getting some sell-signals for that time-frame. The bottom line is that we believe that this market will fall and perhaps break the uptrend line.
The S&P 500 removed the October lows in the Thursday trading session and dramatically reversed course and rallied into the close. On Friday, the market teetered holding on near the highs of the day until 3:00 when, all participants ran for the exits. This caused the market to fall like a stone into the close taking the S&P 500 down 46.25 points on the day. The market looks more and more manic with traders scared to miss the rally and scared to walk into a bear raid. Fingers find themselves very nibble these days. We are seeing some divergences in this market. For example when the S&P 500 removed the October low in the Thursday session, none of the indicators that we follow made a new low or even approached the previous low’s levels.
The Thomas DeMark Expert indicator is actually giving us a buy-signal. The stochastic indicator, the RSI and our own indicator are giving us a sell-signal from oversold levels. The 5-day moving average is at 887.45. The top of the Bollinger band is at 1014.32 and the lower edge is seen at 832.84. As much as we would like to be bullish, we can’t. We remain mired in a downtrend which seems to have no end. Until and unless the market either goes sideways or rallies, we will remain in that trend. The market needs to close above 939 and then 946 for a tinge of bullishness to return.
The weekly chart reflects four probes on the downside, all so far have held. The indicators are oversold for this time-frame but are not issuing a buy-signal. On the monthly chart, we are seeing some divergences; both the Thomas DeMark Expert indicator and our own indicator are issuing a fresh buy-signal.
Both the stochastic indicator and the RSI continue to point lower at very oversold levels. What would we do? Nibble a bit but have very tight stops.
We see the same divergences in the NASDAQ 100 as we see in the S&P 500. We have a 13 count on the NASDAQ 100. The bad news is that this is the lowest close we have seen. We removed the October low in the Thursday session and then closed the Friday session at a lower level than was seen on that dreadful October day.
The indicators that we follow are at higher levels than they were during the October
sell-off. We have only one buy-signal and that is from the Thomas DeMark Expert indicator. The other indicators are all pointing lower, albeit at oversold levels. The 5-day moving average is at 1206.60. The top of the Bollinger band is at 1401.19 and the lower edge is seen at 1136.98. The weekly chart looks awful and the indicators all are pointing lower all at oversold levels. We are at extreme enough levels to begin a rally within the context of a bear market.
The Russell 2000 kept pace with the decline of the S&P 500 and actually out-performed on the downside. The Thomas DeMark Expert indicator is issuing a fresh buy-signal. The other indicators, although oversold, continue to point lower. Again with this index we
note that the indicators are at higher levels than they were during the October low. This is telling us that this is either a good bottom, for a while, or that we will continue lower. We believe that we will see a 10 to 20% rally within a very short time.
Money is sitting on the sidelines waiting for the “all clear” whistle to sound. The 5-day moving average is at 472.72. The top of the Bollinger band is at 562.16 and the lower edge is seen at 434.70. The weekly chart is grossly oversold and seems to be consolidating at these lower levels. We might nibble a little here using the Thursday low as a sell-stop.
Jeanette Schwarz Young, CFP, CMT
Box 1952
One North End Avenue
New York, New York 10282

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