Expiration Blues

July 21, 2006 · Print This Article

The market never gave the idea of a follow through to Wednesday’s oversold bounce a chance. All of the major indices continued to sell-off today and are now below the pre-Bernanke levels. As I mentioned yesterday, if the market can hold current levels early next week we should expect to see another push higher. First, we must overcome the post-expiration blues that usually occurs the day immediately following options expiration. Historically, the day following options expiration is bearish and the June period is particularly weak. A knee-jerk reaction to a move lower would certainly be the best scenario for the bulls.

QQQQ is once again oversold and if the rest of the indices follow the tech-heavy index’s lead we could most-likely see another short-term bounce. The question is, will this lead to a sustainable rally? Amid of the negativity that is currently weighing on the market are some fairly reliable and rare bullish indicators that usually signal that an intermediate-term low is near. The bullish indicators were signaled early this week so we acted accordingly. Wewere hoping a follow-through would occur after Wednesday’s rally, but as we all know that never came to fruition. So we move to next week and as I mentioned things could get rough on Monday, but if we can make it through without being banged up too much (stops being hit) we should be rewarded handsomely over the next few months. Until next week. Have a wonderful and relaxing weekend!

RSI Wilder (5) for July 21, 2006