Since this is option expiration week, we need to look at some relevant information. I say this because no matter how bullish or bearish things can be, the underlying forces of opex exert undue influence and cause traders to miscaculate support and resistance.
QQQQ has max pain at 43, but stronger put support at 42, which has a pc ratio of .92 compared to .75 for 43. In other words, resistance at 43 and support just under 42 (there is also a gap to close there). SPY has little put support until 127, max pain and .94 ratio and that one is the most vulnerable to a quick drop. 128 strike has .40 and 129 .28, a pretty tough climb if you ask me. As for DIA, max pain is 108 with strong put support there and a 1.27 pc ratio. .76 at 109 and .70 at 110. Conclusion? Techs look like they have closer support than the broader market, but could see some selling pressure. SPX is particularly vulnerable.
I had profiled an INTC long with APR 25 calls. Realize that this trade is for a longer term horizon as I see lots of puts building at 25 strike after this opex. Unfortunately, for the coming week, one might want to hedge with some cheap Feb 25 puts, although there is growing put support building and it could surpise us all. Clear resistance there at 27.5, but after opex, we could close that gap above 28 and that is why I am throwing that trade out there. I like buying a strong 1st tier company that has been unduly punished the past quarters while others in the same sector explode higher. But be ready to protect the trade after hours with some YM or NQ puts if need be, or as I suggested, pick up some 25 puts at near-term. If we rally strongly prior to release (Tuesday), then exit the trade and book profits. This is not the week to be a cowboy.
As for charts, the one to watch next week is the COMP and how it can manage to stay above 10 day ema at 2296. There is risk to 2262 should it fail to hold 2300, but I doubt we correct much lower than that, unless INTC and MSFT completely miss. SOX 511 is also a key number. I am bullish on techs, more so than any other sector as electronics was the ticket this holiday shopping season, although I would stay clear of some of those high flyers. But as I mentioned earlier, watch those options!
Oil of course is also on the radar, but if the talks with Iran calm down, we could see a drop to 61/62 in less than a day. Any problems and we could shoot straight up to 65.675, 61.8% August/November. Obviously, something else to keep an eye on.
As for volatility, VXN is closer to the upper envelope than the VIX which has much more room to rise.
This entry was posted
on Monday, January 16, 2006 at 8:30 AM.
