Oil beginning to threaten SIFs

Quote from nitro:

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3) Options expiration is causing strange patterns. That said, the last 1 1/2 hours may be ugly.

nitro
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I got a PM asking why options expiration can cause strange trading.

Ok, suppose equity option Market Makers, for whatever reason, are net short coming into today. For example, they could be short calls and long puts.

As the market falls, they are picking up short deltas because most option traders like to be long gamma (not true always, especially options ex week, but on the last day their gamma position is very likely to go back to being long gamma).

What is happening is that they are buying sell-offs because if you are long gamma, whatever your delta position is gets exaggerated by being long gamma as the market goes in your net position direction. Since they are net short, they buy back some of the extra deltas that their gamma generated by buying stock, staying as balanced as possible and locking in profits wherever possible.

I know it is a bit confusing if you are not used to it. The point is that as the day progresses and gets closer to EOD, MMs are less likely to do this kind of hedging because they eliminated all this ex day risk, etc.

Doesn't mean you can predict the market based on this, but it often explains "strange" trading patterns. You might say, fine who cares what they are doing? Remember, one of the biggest if not THE biggest volume clients of the NYSE etc are CBOE option MMs.

nitro
 
Many markets are up strongly this morning.

The charts say resistance every 25 handles to 1420. Imo only a close above 1420 SPX changes the game.

For the last week or so, there seems to be money flowing into US markets. As I stated my opinion before in this thread, I doubt this is logical money from our point of view, but may be perfectly logical from foreign entities, a lesser of evils type of choice. On the other hand, people are far too slow to see change, and this could be smart money that sees the worst of the sub-prime over with. In point of fact, markets no longer swoon on that news anymore...

For intra-day traders, remember, lows form sleepily, but tops form violently.

nitro
 
Very difficult open imo. Cross currents everywhere. A battle between those that see value, and those that are slowly taking profits waiting for "the big one" to start the real buying.

This price action looks almost a mirror image of yesterday. Markets opened higher, but then NQ weakened badly and took the whole market with it. Today, it is the opposite so far, NQ is showing signs of flows, helping keep up what otherwise looks like a market that would implode.

Very interesting. I say watch NQ closely for that buying to dry up, then hit the sell button intra-day. I can't get excited about tech when HPQ basically kills it and markets are extremely defensive. Not today. Odds at least 75% that we have not seen the LOD.

nitro
 
1350ish SPX is always support/resistance, with varying degrees of importance.

Although the importance of this level is way less than the first time we broke it on the way down, imo it would be a mistake to underestimate a broken 1350 SPX level here.

There is only one positive as far as I can see. NQ is getting flows again. Still...

Danger Will Robinson, Danger!

nitro
 
Highly unlikely we see it today, but there is a thick area of support 1337.50 to 1345.00

If we break that, imo it is likely we see 1300 SPX within days.

Markets have a way of closing at or near the most doubtful point. Imo that is just above 1337.50


nitro
 
SPX is in grave danger. 1325 is obvious support, but I would be cautious. 1300ish is next "thick" support, but to be accurate, 1270ish SPX is where one would want to buy with some conviction, imo.

There is extreme danger of a retest of lows. I would be buying tiny shares of good companies on the way down. I know I sound like I am talking out of both sides of my mouth, but both views of what I am saying above I wholeheartedly believe. No one knows where the bottom is, so you buy good companies at good prices as an investor.

That said, you will likely show a loss in the short term. But the discipline that it instills is what matters over the long term, and the reward is reaped then.

nitro
 
1400 SPX is the obvious resistance now.

Shorting here is extremely risky imo. Taking profits on the other hand on some seems prudent, which is what appears to be happening as I write this.

Accurate players will squeeze the extra 10 higher handles likely, but then as we approach 1400 SPX, it will likely take sustained buying to prevent the stampede of PT that is almost certain there.

1420 SPX is the holy grail higher now. Everyone will stampede to buy above that, which will only be fueled further by massive short covering.

nitro
 
People are reacting positively every time news on the re-insurers comes out.

Don't forget the opposite side of the coin. Once all the good news is out, markets will price that in since all the buyers that wanted to buy on these news have bought. Bulls may be the ones in for a big surprise.

This market is event driven more than any market I can remember in recent history. Soon, it will start trading on valuations and more traditional methods, imo. When? Don't know.

nitro
 
It's like Deja Vu all over again.

Markets love bubbles. It is as if people are addicted to some form of gambling, whether it is tech in 1999/2000, real estate 2001 - 2006, and now commodities.

Let's get the facts straight and leave emotion behind. Oil from the charts looks like it wants 106 - 110. Gold first resistance is approximately 1050. Wheat already looks outrageously high even from the charts on all optimistic outlooks. Oil is the only commodity that you can make a real case for going higher even through chart upside targets. The rest of the commodities speculation is gambling.

While I believe that the move from here to there will be nearly all dumb money the way that the last surge in tech was dumb money back in 2000, it doesn't mean it won't go there. Watch for institutions to take profits into this final surge on at least 1/2.

May gawd have mercy on your soul once the music stops in the commodities bubble and you are long.

nitro
 
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