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Options Expiration Week Trading Range

 
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PostPosted: Sun Aug 13, 2006 6:28 am    Post subject: Options Expiration Week Trading Range Reply with quote

Next week is an options expiration week, which tend to be bullish and volatile. Intermediate-term technical indicators generally remain bullish. However, many short-term technical indicators are moderately overbought. Consequently, the market may rise or stay high next week and fall the subsequent week.

The SPX daily chart below shows 1,261 is key support, i.e. July breakout point (see arrow), along with additional support at the 20 and 50 day MAs. SPX and its MACD have been making higher highs and higher lows, although MACD created a bearish crossover Friday, while the Stochastics are oversold. The SPX 200-day MA has maintained the uptrend.

SPX closed Friday at 1,266 3/4. Some August Max Pain expirations are: SPX 1,260 with the value of calls slightly more than the value of puts. OEX 585 with the value of calls roughly four times greater than the value of puts (which is bearish, since the put/call is a contrarian indicator). OEX closed at 585.60 Friday. QQQQ 37 with the value of puts about 50% greater than the value of calls (which is bullish). QQQQ closed at 36.53 Friday. OEX often tends to be a more reliable Max Pain indicator than SPX or QQQQ.

There are several important inflation reports next week. On Tuesday, the PPI will be reported, and on Wednesday, the CPI and Capacity Utilization will be announced. Inflation expectations are higher. So, if the inflation data are in-line or better than expected, SPX may hold 1,261 next week. Also, many retailers report earnings next week, including WMT HD and SHLD. It seems likely SPX will trade in the 1,260s and 1,270s next week, although that's a narrow range.

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