Watch Out For Expiring Options

AIG rallyIt seemed fitting for the market to miraculously close "green" once more today on this St. Patrick's Day (about the 7th day in a row) after what looked to be a very aggressive sell off heading into close. However, the sell off was stopped in its tracks with about a half hour to go, only to rebound back into positive to close. Once again accompanying this rebounding close, was another very low day of volume.

VIX levels are at 2008 lows, which does not give bears much confidence of a strong move downward. However, just as we saw from 2007, as the market gets going, that VIX can move fast. Considering that, historically, not much significant happens on the short side during low volume trading has discouraged bears from being more aggressive. Bulls, on the other hand, have a hard time believing that the market keeps going up. They are almost wanting a dip, just so that another potential rally could have some momentum.

Important data being reported tomorrow is CPI and new jobless claims at the opening. As usual, these should definitely set the mood for most of the days trading trends. So far, CPI has not played much of a role in influencing investors. Jobless claims could definitely put a wedge in trading if they look much worse than expected.

One thing bears need to be careful about tomorrows trading is the big options expiration date. There is a lot of open interest in options for the S&P at 1170 and 1175 levels. In most cases, with the big options, we tend to say the market move towards those levels on expiration day. If that is the case tomorrow, we are in for yet another green trading. I do expect a pull back here shortly, but tomorrow is set up for another green day of trading.

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My Freddie Mac and Fannie Mae positions performed very well today, as these government backed entities are finding more investors. If given another big bump tomorrow, I will most likely exit my positions on these, as I do not want to hold on to them much longer. Watch for volume being low once again tomorrow, which could be another reason why markets move higher. At any rate, it should be a more exciting day of trading. Happy Trading.


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