Summer’s Expiration: September 17 – 21

Monday’s energy was nonexistence. The exuberance that the Fed tried to make wide spread instead became the fizzle. Therefore this market will probably search for bids and buyers at lower prices. We should see this new environment become prevalent whereby the Fed is not as proactive in the stock market. The bonds tried to bounce and succeeded to the extent of hitting a former support area that is now a resistance at just under 146. This once favored investment vehicle of the Fed has now become yesterday’s news. Therefore the upside should have less energy on rallies and the downside more speed on declines. Expiration weeks generally have a buy bias especially in the beginning of the week. Failure to generate high plus tick in the environment of price advances denotes ebbing energy. Therefore the foundation of this rally is suspect and could be exploited Thursday or Friday. We are not seeing sufficient pullbacks to generate a correction so therefore this market is vulnerable. Keep this in mind. The bonds kept swimming against the current. The current is not just a ripple but became a bigger wave with each day this week. We realized our sell point at 146 ’27 mid-week.

I had all of you take your profit in your short position in Thursday morning’s advisory. Time is one of my critical gages of effective setups. So, we cashed in and avoided risk and didn’t allow the trade to go haywire. A real rarity occurred: a full reversal at highs 147 ’19 are probably an intermediate line in the sand. We should not go higher than that because the full reversal days create weak longs exiting as well as overzealous shorts adding to positions. The bond market had its legs cut from underneath the prices.

Expirations are always difficult to assess. The crosscurrents bring different players that have to unroll positions. The movements are sometimes misleading and lately the net change has been nominal. Friday’s S&P highs were made with a backdrop of expiration buy bias, so next week may have some difficulties. The overall movement was much more contained than we have recently witnessed. Many times bonds are an afterthought. Trading action showed they were not on anyone’s radar, including Ben Bernanke’s. Bond highs at 147 ½ can now be tentatively as exhaustive. A close above there would reinstitute the upside. A close below 146 could create more downside.