Options Expiration Rollercoaster: April 16-20

Profit objective was reached on the first day of the week for the advisory trade recommendation. Thus, providing a healthy does of confidence and reinvigorated my trading enthusiasm. Our current market could be showing additional maturity. With it being expiration week, generally it has a positive bias particularly in April. Therefore if the S&P is unable to close above 1375 it will be showing that the internals have weakened considerably. Keep in mind that a full roll down would require a close below 1350. In the bonds market, the old highs of the prior week were just shy of 142. The big question was would they be able to close above last week’s highs? The bonds are definitely marching to their own beat. Virtually all day Tuesday the bulls charged up the mountain, as stock prices ripped through previous resistance with a vengeance. Strangely enough there was not excessive plus NYSE tick, despite a 20 plus S&P gain for the day. It was a suspicious rally to say the least. In addition, the bonds acted in a bizarre fashion. The early morning saw lows made at 141 ‘4 that did not give up throughout the day. Ordinarily a strong stock rally would have caused a trend down movement. Not journeying with lower lows throughout the day was abnormal given the circumstances.

I am an avid tape watcher. What I viewed Wednesday afternoon was a tight, low volume atmosphere. When these happen on expiration weeks, look out. It was entirely too quiet, meaning the environment is about to have a structural change. The bonds had a very orderly and dynamic trend up move in the morning. Normally this implies a buyer is in position to accumulate all day. However, in the afternoon volume dropped noticeably and advances all aborted. If the buyer has completed their purchases, the bonds are in a vulnerable position for a 3 to 5 point pullback!

Trading on Thursday was quite an adventure. The Globex journeyed to 1390 and as the day progressed we reversed 25 S&P points; representing a potential cross through the box set up if a close below 1375 would take place. It is an Expiration type of rollercoaster ride. There is an interesting dichotomy in the mist of it all. The S&Ps were literally hammered as the day progressed, but the bonds were unable to make higher highs. Have the lofty prices of the bonds finally met their pinnacle? The overbought situation setting, not unlike the S&Ps, suffered. Furthermore, the bonds are sitting on a quicksand foundation, which will eventually give way and sink.

Expiration Fridays test a man’s endurance regarding patience. The midday slowness seems to be a recess for traders. The S&P 500 was unable to hold the early morning rally. However these actions are inconclusive plusses on the day were still experienced. There is still some unwinding of positions yet to be seen. The bonds were a real head-scratcher on Friday. The early morning finally had a trending down environment. Low and behold, during the midday, a rally pushed prices in a very convincing manner upward with no interruptions; a true manipulation orchestrated without a free capitalistic structure. The skewed environment will eventually snap back to normalcy.