With all the recent talk about the flash rally and the war, it's been easy to forget
that tomorrow's option expiration is also a Triple Witching day. Traditionally, March
Triple Witching's have not been kind to the markets - we've seen declines on five of
the last seven of them. This is not particularly encouraging for the bulls.
PREVIOUS MARCH 'TRIPLE WITCHING' DAYS
In addition to that, the open option interest on the QQQ's is indicating that most
investors are expecting them to be around the 25.00 mark by tomorrow. Without getting
into too much theory today, we have seen that stocks and indexes tend to settle in
the median range between the majority of open bearish puts and bullish open calls. As
you can see from the chart below, most of the open interest for March calls are at a
strike price of 25.00. Most of the open interest for March puts are also at that
25.00 strike price. If the theory holds true, today and tomorrow we'll see selling
pressure on the QQQ's to bring them closer to that 25.00 level. This is certainly
scary, considering the QQQ's closed at 6.70 yesterday. That would be a $1.70 (or
6.3%) decline. If that sounds like a lot, it's because it is. But consider that we
made a similar increase just a few days ago, so anything is possible.
QQQ MARCH OPTION OPEN INTEREST
But the real implication here is not the problem with Triple Witching or open
interest - we've survived those situations before. The potential hazard in our very
near future is what an even moderate decline would do. Currently investors are
concerned about war, nervous about stocks, participating in a floundering economy,
and possibly blinded by a few days of great gains. This is why the gains from late
last week and early this week could be considered a "fragile rally". We're sitting on
a little profit, but one wrong turn could shatter the rally, and we could find
ourselves crumbling lower again, without warning. Or to put it in technical terms, if
we start breaking down under our recent support levels (even just a little), we may
see a mass exodus that starts a substantial drop in equity values.
So, as we've been saying, enter into new positions with caution. This fragile rally
may eventually get a firm holding, but until then, be aware that it wouldn't take
much to force the market even lower than it was before. There are plenty of negative
catalysts that could do this, with war being the most obvious.
KEY SUPPORT AND RESISTANCE LEVELS
SUPPORT RESISTANCE
Nasdaq Composite 1375 1420
S&P 500 860 890
Dow Industrials 8165 8365
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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