Sunday, July 12, 2009

Weekly Watchlist 7/13

Going into option expiration week the SPX finds itself at 879 which is the exact site of its 200 day moving avg. The neckline of the head and shoulders pattern is also just underneath this level and if the SPX closed under 870 then I would consider it very bearish.

I still think this market is eventually going to 850 at a minimum and potentially a bit lower. But for this week at least initially I would expect to see a weak bounce back into the 890s and perhaps even into the 900 resistance level. Everyone is expecting this head and shoulders to breakdown as a sure thing. I get a bit nervous when I hear everyone predicting the same thing; and being so confident about it. It would not at all surprise me to see the market throw everyone a curveball and trade up for a few days and make another lower high before then finally dropping and breaking down.

Lots of earnings coming out this week so it could be a wild one. Overall I would still have a bearish bias going forward but the market is oversold and I would expect to see the unexpected this week and perhaps be ready for the market to have a weak bounce off this level. After all, the market will move and take as few people on the ride to profits as it can.

The watchlist:


Shorts>>> COH, ANR, GNK, DE, DD, MLM, FTO, IEX


Anonymous said...

Great call. Market is already bouncing this morning.

Jason said...

Thanks. Yeah I was even a bit surprised at the strength of the morning.

Anonymous said...

What is your take on today's action? The trigger for today's rally is supposedly optimism around financials and the INTC quarterly results.

Here is what I don't understand: things look relatively bleak, most indicators for the overall economy are not giving positive signals (that I'm aware of). INTC is a well run company and hats off to their management for a stellar report, GS is in a unique position to make money off of trading where it's partners are not. So, the trigger for this rally seem to be transient and I'm having a hard time understanding how that translates to other names out there.

The market clearly wanted to go higher - but who is driving it higher? Is this rally into options expiration designed to kill the downside plays (I was sitting on a very profitable PUT butterfly that is now worthless)?

What do you think here? Do we hold this 925 level through expiration or are we in for another surprise once we've given up all hope?

Also, if you have time, I'd love an explanation for the best way to get out of a butterfly position. I always find myself conflicted as to when to exit (wait for expiration and maximum profit, or take it off the table at some earlier point?).

Anonymous said...

I mean to refer to "GS competitors" not "GS partners".

Jason said...

Great thoughts.

You def gotta respect the price action. Quite impressive today for sure. Whenever I see a runaway gap like today I like to sell any longs I have into it. Like you said, the rally is broad based but as a result of just a few big caps.

Nevertheless, I think option expiration and earnings week is a time you cant make to much sense out of the action. We could see this short squeeze to continue into end of week or today could be a bull trap (sentiment is pretty high again, out of nowhere).

I dont know for sure what will happen but I tend to think we drift back lower to at least try to fill that gap the next few days. I have thought we break down to 850 soon but if we get over and hold the 930 area I will be very quick to change my view.

I am staying pretty flat and waiting for definitive signs into next week. Since I always have a balanced portfolio (longs and shorts) its easier to deal with these whipsaws.

If you are trying to get out of a profitable butterfly you know you get max profit at expy but to be safe its good to draw a few lines in the sand on the chart at key support/resis so you can put in stops at that mark in case the market moves fast. This way you arent hoping for max profit but still could get it as long as the stops on each trap the butterfly within.