It’s options expiration day so anything can happen and probably will!
In Asia, that anything has translated into 400 point gains for the Nikkei and the Hang Seng (we’ll be lovin’ those Toyota calls today!) with all of Asia making a very strong recovery. India is up another 3.5%, making 11% in 2 days! Europe is up across the board but not by too much as they are waiting for us to open before committing.
It should be noted that, just last Friday and this Monday, the Nikkei made a 300 point recovery in 2 days before dropping 400 points on Tuesday (from where it has bounced almost 1,000 points since!):
http://finance.yahoo.com/q/bc?s=%5EN225&t=5d
Before we get too excited about our own markets, let’s remember our lesson on Fibonacci retracement which is, unfortunately, right where we are at the moment:
http://www.chartfilter.com/reports/c14.htm
The Dow is up 338 points in 2 days from it’s low of 10,698 after dropping from 11,670 making a 35% retracement so far so, according to Fibonacci, we could turn right about here or we could just as easily make another 120 points and still be considered just a bounce. Personally, I usually feel fairly comfortable once we get past 40% but with the speed of the drop and recovery cycle, I am going to be looking at 30 more Dow points as the beginning of the danger zone which will last through 11,200 after which I would have to say we are firmly on the way to new highs.
The Bull scenario for this is the longer view that we climbed from 10,156 in October to 11,670 in May (1,514 pts) and have retraced just over 50% of that gain in one month. Taking the long view, the Dow took a much needed bounce off the 40 week moving average as it sets up for another run at its all-time high. The 50% mark is dead on if you look at the 200 dma of 10,900 and throw out the quick dip below it (that has been just as quickly erased).
http://stockcharts.com/gallery/?djia
Back in the simpler world of basic stock charting, the S&P is still the one to watch as it attempts to break the 200 dma of 1,260 this morning and nothing matters more than it breaking and holding that level to give us an indicator of market movement.
Oil is off a bit this morning, still priced way too high from a fundamental perspective and in serious need of correction while gold has bounced back along with a dollar decline to just under $590. Gold has completed its own Fibonacci retracement as it went from $460 in October to $730 and just bounced back to my $583 dollar adjusted target (again you throw out the quickly erased tails) for a near perfect 50% retracement on the uptrend.
http://stockcharts.com/gallery/?%24gold
Today is a wait and watch day as options expiration make any positions a suicide run. I’m not even sure I would trust the Valero Rule today as a lot of stocks will be forced into positions to apply Max Pain to optionholders.
If we get a big down day, you could look at it as having a second chance to pick up positions we missed yesterday but I would rather wait until Monday as we still have over 600 points to go before we can call it a recovery.
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Gold stocks, especially GG may make good momentum plays if gold can stay over $580 but I’m actually waiting to short them if gold is again rejected from this level. Watch for a possible quick turn in gold today where it may begin to head down to my low target of $520, especially if the dollar gains strength.
I’ll be looking at the builders to see if there is real faith in the economy – another up day for them could be a very good sign and let’s not forget that no one shorts oil into the weekend so a change in that sentiment would be a huge sign of a real collapse in that sector.
ADBE has already recovered from its devastating overnight drop so we’ll have to wait and see how the morning trade goes but I will be looking for a cheap entry on the Jul $30s, maybe .50 to .75ish but I will be patient!!! If it starts dropping fast I don’t need to catch the knife, I’d rather pay over .50 on the way up than assume I hit it on the dot on the way down. The company did lower guidance to a very slight beat of last year but again, that included charges and is no reason for the company to be testing last year’s lows. If it heads down below $28, I will be inclined to wait it out until next quarter rather than expecting a quick recovery.
TM may test the 200 dma at $102 today. The Jul $105s are $2.10 but the stock is up 5% in 2 days so we can hope for a little pullback first.
It should be a fun day to watch but I’ll be staying on the sidelines unless we get some real movement from the S&P over 1,265 at which time I will be picking up the slow pokes.
Have fun!
– Phil
