Last week's action, especially Thursday's tape, had all the makings of a pre-option expiration low. The Nasdaq made an important test of the August 2007 low of 2386 and came out alive, closing just above the 23.6% ex-bull market retracement. However, bulls could not manage a close back above the 2003 bull market trendline, now around 2512. We are also in the sixth month of closing below the 10 month moving average, a typical bear market pattern, currently at 2520 (note the confluence 2512/2520).
Given the low equity ISE, oversold daily conditions and lack of economic data on Monday, I expect bulls to extend Friday's gains tomorrow (Monday). But given the primary trend, that rally should eventually fail. Next week is quadruple witching, with lots of theoretical put support on the index options. It does provide a base for bulls. But should those put option sellers be forced to cover their rather large positions, we could have an end of week collapse. That is not the high odds set up, but it is the one that typically accompanies bear markets where all optimistic behavior must be crushed in order to achieve a lasting bottom. We are far from that.
As you may know, one of my favorite op-ex week set ups involves either shorting weekly R1 on Monday, or buying weekly S1. Given that weekly R1 for NQ (NDX september futures) is at 2010, and close to QQQQ 49, I would consider that trade should they give it to us (also last week's high and not coincidentally the June 2001 high). As I mentioned last week, QQQQ is being positioned for a range between 47 and 49. But be careful and respect volume breakouts, using an hourly close as confirmation.
One of the major movers for QQQQ is AAPL, and that stock has option related resistance starting at 185, with a veritable brick wall at 195 and above. They are not about to pay out all those euphoric June 200 calls that were purchased before last Monday's sell the news event.
Per last week's chart, watch the 621/622 level for OEX (S&P 100).
For SPX, the first area of resistance will be 1366, followed by 1370 and 1378.88. ES could turn out to be a better short than NQ if energy collapses. I also like an overall bearish position in the RUT. Higher rates are not welcome for small caps. Given the parabolic rise on the monthly chart during the 2003 bull, it could give bearish trades max reward. Resistance is 736.60, 740 and 745. 729/730 is support. Use IWM options or ER in the futures. Bulls get it back above 746. Keep these trades on a tight leash and always short bounces, not breakdowns. Be patient, let the trades come to you and don't stay stuck in a bias if it flips.
This entry was posted
on Sunday, June 15, 2008 at 6/15/2008 01:09:00 PM.
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