First, I just wanted to thank all of you that tuned into Fox Business during my appearance last Tuesday. I appreciate all the support I have received as the media is still very new to me. Here is a link in case you missed it.
Second, I wanted to mention that I will be attending the Benzinga Fintech Awards and for anyone interest in joining, here is a link where you can purchase tickets. Now onto the markets!
Last week: Just as I like to replay when I’m correct, I am not ashamed to say that I didn’t see that drop coming last week. In fact, as you can see below from last weeks post, I was leaning bullish; luckily it was with a very helpful caveat.
“Simply stated, the trend is higher, but not being able to get and stay above SPY 211 early in the week may result in a choppy to lower week. I see strength for next week coming from financials as well as momentum tech names so look there for clues.”
The reason I emphasized 211 was because of last weeks SPY open interest. Although I did not see such a sizable drop coming and didn’t benefit from it, I also stayed out of harms way when SPY couldn’t stay above 211 along with the weakness in financials.
The overall market (based on the S&P) has now given back all of Februarys gains and is essentially flat on the year. The intermediate term trend (as seen since the end of October 2014) remains sideways chop and can be viewed as an intermediate period of consolidation. It seems that both breakdowns and breakouts have very little staying power and buying the dips/selling the rips in a very timely manner is the key for short term trading.
Next week: As I see it, and will present my evidence below, the short term trend is down.
We are not oversold: The 20-day highs did get to oversold readings and staged a minor bounce, but note that it often takes a few oversold readings with regard to 20-day highs before bottoming.
We have a ways to go before being oversold based on 20-day lows: 
Relatively secure bottoms are often found when stocks below their 50-day moving average get below at least 30% and often much further. We are no where near there and haven’t been since the low last October. 
Quarter end: Tuesday is quarter end and it’s possible we will see a rally the first couple days of the week for ‘window-dressing.’ I don’t know if such a thing really exists or not, but it does seem rally’s takes place more often then not before quarter end. Regardless, I thought I would display the quarterly ETF open interest for SPY, QQQ, and IWM. Importantly, I want to emphasize that in the past I have not found them to be too useful. I would suggest that is because 1) they only happen once a quarter so I don’t have much data on them and 2) because I assume many of these options were bought a long time ago and are already considered dead money. However, I believe that they can serve as an on-going experiment for all of us and if Monday’s action is in-line with what the quarterly open interest suggests (namely a rally or ‘window dressing’) then we can perhaps view it as extra confirmation.
SPY quarterly open interest: If this were to pan out then it would suggest a close at or above 208. Because we closed near 206 on Friday, then if we gap up or begin to rally on Monday (with strong internals) then this can add extra confirmation that 208 or above could be in the cards by end of the day Tuesday. 
QQQ quarterly open interest: If this were to play out, it would suggest that any rally prior to end of the day Tuesday would be capped at 107 (also where the best pin would be).
IWM quarterly open interest: If this were to work then it implies IWM will close over 120 and possibly over 124 on Tuesday. 
Before I get into the weekly open interest on SPY, what the above possibly suggests is a start to the week that is either choppy or that rallies. Recall though that above I stated that I believe the short term trend is down. The reason for that outlook has a lot to do with looking at many of the momentum open interest graphs (names like AAPL, FB, LNKD etc) that suggest any rallies next week will be met with lots of resistance. Furthermore, the daily MACD is bearish for SPX, QQQ and IWM and the only weekly bullish MACD is on the IWM. Price is also currently below the daily 10, 20 and 50 day exponential moving averages for SPX and QQQ and only the IWM is still above the 50 and 20 day EMA, but still below its 10 day. Finally, the IWM is the only one of the three still above its February breakout level (albeit not by much) while the other two have now given their entire rally’s back. Thus, even the small-caps, which currently are the strongest of the bunch, are in a short term downtrend. Below are their daily charts.
SPY weekly open interest (expiration Thursday as next week is a shortened week): The main take away from this is that if we happen to have a very strong week the odds of getting above 211 are very slim. On the other hand, if we fall below 205 it could be a waterfall effect (due to delta hedging) down to 202, which coincides with a gap that has gone unfilled.
How can you use this? Unless the open interest drastically changes (something I watch daily), if we can get to 208 (which would be consistent with the quarterly expiration) and stay above it, then we have a chance to shoot for 211. However, a failure to reach 208 or to get much further above it leads to good odds that if 205 doesn’t hold we will see further selling.
In sum, the evidence suggests a potential rally or sideways chop early in the week, in which if 208 doesn’t hold, the likelihood of revisiting 205 or going lower increases by the end of the week or into the second week of April. I would be remiss not mentioning that although my bias is for the market to hold up into Tuesday, it’s possible there is no rally to sell into and the week begins in bearish territory. I suggest short term traders monitor the week early on to adjust your expectations given the evidence at hand.
Good Luck next week. If you are looking for specific option or stock trade ideas (short and long term), daily market commentary, and open interest analysis on momentum stocks consider a subscription.
Troubled Markets Ahead
First, I just wanted to thank all of you that tuned into Fox Business during my appearance last Tuesday. I appreciate all the support I have received as the media is still very new to me. Here is a link in case you missed it.
Second, I wanted to mention that I will be attending the Benzinga Fintech Awards and for anyone interest in joining, here is a link where you can purchase tickets. Now onto the markets!
Last week: Just as I like to replay when I’m correct, I am not ashamed to say that I didn’t see that drop coming last week. In fact, as you can see below from last weeks post, I was leaning bullish; luckily it was with a very helpful caveat.
“Simply stated, the trend is higher, but not being able to get and stay above SPY 211 early in the week may result in a choppy to lower week. I see strength for next week coming from financials as well as momentum tech names so look there for clues.”
The reason I emphasized 211 was because of last weeks SPY open interest. Although I did not see such a sizable drop coming and didn’t benefit from it, I also stayed out of harms way when SPY couldn’t stay above 211 along with the weakness in financials.
The overall market (based on the S&P) has now given back all of Februarys gains and is essentially flat on the year. The intermediate term trend (as seen since the end of October 2014) remains sideways chop and can be viewed as an intermediate period of consolidation. It seems that both breakdowns and breakouts have very little staying power and buying the dips/selling the rips in a very timely manner is the key for short term trading.
Next week: As I see it, and will present my evidence below, the short term trend is down.
We are not oversold: The 20-day highs did get to oversold readings and staged a minor bounce, but note that it often takes a few oversold readings with regard to 20-day highs before bottoming.
We have a ways to go before being oversold based on 20-day lows:
Relatively secure bottoms are often found when stocks below their 50-day moving average get below at least 30% and often much further. We are no where near there and haven’t been since the low last October.
Quarter end: Tuesday is quarter end and it’s possible we will see a rally the first couple days of the week for ‘window-dressing.’ I don’t know if such a thing really exists or not, but it does seem rally’s takes place more often then not before quarter end. Regardless, I thought I would display the quarterly ETF open interest for SPY, QQQ, and IWM. Importantly, I want to emphasize that in the past I have not found them to be too useful. I would suggest that is because 1) they only happen once a quarter so I don’t have much data on them and 2) because I assume many of these options were bought a long time ago and are already considered dead money. However, I believe that they can serve as an on-going experiment for all of us and if Monday’s action is in-line with what the quarterly open interest suggests (namely a rally or ‘window dressing’) then we can perhaps view it as extra confirmation.
SPY quarterly open interest: If this were to pan out then it would suggest a close at or above 208. Because we closed near 206 on Friday, then if we gap up or begin to rally on Monday (with strong internals) then this can add extra confirmation that 208 or above could be in the cards by end of the day Tuesday.
QQQ quarterly open interest: If this were to play out, it would suggest that any rally prior to end of the day Tuesday would be capped at 107 (also where the best pin would be).
IWM quarterly open interest: If this were to work then it implies IWM will close over 120 and possibly over 124 on Tuesday.
Before I get into the weekly open interest on SPY, what the above possibly suggests is a start to the week that is either choppy or that rallies. Recall though that above I stated that I believe the short term trend is down. The reason for that outlook has a lot to do with looking at many of the momentum open interest graphs (names like AAPL, FB, LNKD etc) that suggest any rallies next week will be met with lots of resistance. Furthermore, the daily MACD is bearish for SPX, QQQ and IWM and the only weekly bullish MACD is on the IWM. Price is also currently below the daily 10, 20 and 50 day exponential moving averages for SPX and QQQ and only the IWM is still above the 50 and 20 day EMA, but still below its 10 day. Finally, the IWM is the only one of the three still above its February breakout level (albeit not by much) while the other two have now given their entire rally’s back. Thus, even the small-caps, which currently are the strongest of the bunch, are in a short term downtrend. Below are their daily charts.
SPY weekly open interest (expiration Thursday as next week is a shortened week): The main take away from this is that if we happen to have a very strong week the odds of getting above 211 are very slim. On the other hand, if we fall below 205 it could be a waterfall effect (due to delta hedging) down to 202, which coincides with a gap that has gone unfilled.
How can you use this? Unless the open interest drastically changes (something I watch daily), if we can get to 208 (which would be consistent with the quarterly expiration) and stay above it, then we have a chance to shoot for 211. However, a failure to reach 208 or to get much further above it leads to good odds that if 205 doesn’t hold we will see further selling.
In sum, the evidence suggests a potential rally or sideways chop early in the week, in which if 208 doesn’t hold, the likelihood of revisiting 205 or going lower increases by the end of the week or into the second week of April. I would be remiss not mentioning that although my bias is for the market to hold up into Tuesday, it’s possible there is no rally to sell into and the week begins in bearish territory. I suggest short term traders monitor the week early on to adjust your expectations given the evidence at hand.
Good Luck next week. If you are looking for specific option or stock trade ideas (short and long term), daily market commentary, and open interest analysis on momentum stocks consider a subscription.
Share this: