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Next Week Trading (Sep 11th)

 
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arthur
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PostPosted: Sat Sep 11, 2004 8:35 am    Post subject: Next Week Trading (Sep 11th) Reply with quote

Next Week Trading (Sep 11th):

Next week is options expiration week, which is typically a volatile week. Max Pain expiration works over half the time and Max Pain hitting their targets at some point within a week or two of expiration works far more than over half the time. Max Pain is when the greatest number of options expire worthless (e.g. by closing at a strike price on expiration day).

SPX Sep Max Pain expiration is 1,100 with the value of calls slightly more than the value of puts (which is bearish, since options are a contrarian indicator). SPX closed at about 1,124 Fri. OEX Sep Max Pain is currently 540 with a far larger value of calls than puts. OEX closed at 546 1/4 Fri. DIA Sep Max Pain is 101 with a far larger value of puts than calls (which is bullish). However, DIA closed at about 103 1/4 Fri. QQQ Sep Max Pain is 35 with a larger value of puts than calls. QQQ closed at about 35 1/4 Fri. Also, I may add, I don't have the organized data on EBAY. However, EBAY Sep Max Pain seems to be 85 with the value of calls far more than puts.

Therefore, based only on Max Pain data, the market may have closed near a short-term top Fri, and next week may be volatile (which is typically the case during options expiration week). I tend to believe, OEX will fall to 540 sometime next week (which equals over a 120 point Dow fall). QQQ will likely fall to perhaps 34 1/2 and close at around 35 next Fri.

The Nasdaq Oscillator (page one of "Chart Room") closed at over 50 (i.e. severely overbought level) and its 20 day MA is very high. Also, Nasdaq rallied to about 1900, i.e. previous lows and the bearish engulfing two months ago. VXN (Nasdaq volatility index) fell below 20, which is near its all time low. Also, the TICK MAs are very high, which may be bearish short-term. Similar overbought readings are seen in the NYSE short-term indicators.

If OEX opens high Mon, I plan to buy OEX Sep (perhaps 550) puts, which will have huge leverage. If QQQ and EBAY fall, I'll sell the puts, and may have an opportunity to buy some of those puts again on bounces before the end of the week. Also, INTC is undervalued and plan to buy Jan calls on dips. Added SPX to VIX ratio chart on page five of Chart Room.

ORCL reports earnings Tue, BBY Wed, COMS Thu, and CC Fri. Also, on Tue Retail Sales will be reported, on Wed Industrial Production, Capacity Utilitzation, and Inventories, on Thu the CPI and Unemployment Claims, and on Fri Michigan Consumer Sentiment.

My portfolio is over $835,000 including over $675,000 in cash.

Calls Contracts

PSFT Jan 17.5 2005 20

Puts Contracts

QQQ Oct 35 2004 400
QQQ Oct 36 2004 400
OIH Jan 80 2005 20
EBAY Sep 95 2004 20
EBAY Oct 85 2004 100
EBAY Oct 90 2004 100

Portfolio at $500,000 on Jul 1st, 2003
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