Moby Waller's  Instablog

There looks to be a lot of November Expiration related "pinning" going on as we head into Friday's close.

Many big equities are moving right towards strike price pin levels, including (AAPL) at 200, (GOOG) at 570,  (RIMM) at 60, (DIS) at 30, (AIG) at 35, (FITB) at 10, (NFLX) at 60, (AMZN) at 130, (COST) at 60, (DISH) at 20, (MON) at 80, (HPQ) at 50, (KO) at 57.5, among others.

As we've previously mentioned, this kind of "pinning" action, where a stock closes right around an option strike price on an Expiration Friday is due to a variety of factors.  Among these are technical, manipulation, psychological, but also the actual option open interest at these strikes.  The open interest causes market makers and hedgers to buy and sell the stock around those levels to keep the books balanced (delta neutral, etc).

The S&P 500 (SPY) is starting to move towards 110 ... a last hour spike to that level would be likely a "false" pin that would be reversed on Monday, in my view.

We've seen it time and time again, and this expiration afternoon looks like no exception.

Moby Waller,
BigTrends.com
1-800-244-8736

Disclosure:  Moby has recently recommended a short-term SPY Put Position for Index Options Timer Subscribers.

I've been keeping an eye on this pattern for some time, and have written on it before.  But now we are imminently approaching a major 50% retracement test on the S&P 500 Index (SPX) (SPY).  Take a look at the following Weekly Chart, which tracks the 2007 high to the 2009 low and places Fibonacci retracement levels on it:



So 1,121.44 is the exact 50% SPX retracement level (we closed at 1109.30 on Monday night).  Besides being an important Fibonacci sequence number, this is also a generally known area of potential trend reversals.  Keep a close eye as we move in on this area ... we certainly could overshoot to the upside due to the market strength, but it definitely is a likely area of a market reversal lower (at least back down to the 1,000 area).

Moby Waller,
BigTrends.com
1-800-244-8736

Disclosure:  Index Options Timer subscribers have a 1/4 SPY Put position currently open.

I reviewed quite a few different economic and valuation charts today, looking for correlations with market performance and big picture trends.  The following chart of a well-known economic report was striking to me, source here.



You can see that the Weekly Initial Jobless Claims (seasonally adjusted) showed a clear strong uptrend through the late-February/early-March area.  At this point they have trended fairly consistently lower.

This correlates very strongly with the market (SPX) (SPY) (QQQQ) (DIA) bottoming on March 9th and its strong upward trend in that time.

When does this report come out?  Normally it is every Thursday at 8:30 am Eastern Time.  It is released by the U.S. Dept of Labor and is available here.

Keep an eye peeled for the unveiling trends in this weekly report.  Currently, it looks like the rate of decline may be slowing as we approach the 500k area, which may mean the market uptrend will pause/reverse.

Moby Waller,
BigTrends.com
1-800-244-8736

Disclosure:  None

The CBOE Volatility Index (VIX), which measures the implied volatility of S&P 500 Index (SPX) options, is a good measure of overall market expectations for volatility.  As you may know, we hit record highs in the VIX over the past year, but have come down to the 20 to 30 area over recent months.

However since October we have seen the VIX make a mini-rollercoaster ride from the 30 area down to the 20 area ... then back up again to over 30 this month, and now we are heading back down lower, closing below 25 on Friday.

This recent volatility in the VIX itself has caused the Bollinger Bands on the index to widen considerably.  As you can see in the following chart, the Bollinger Band Width on the VIX has reached its highest amount since January 2009.  Certainly, that was a much more volatile time then now, before the March market bottom.

VIX Daily Chart with Bollinger Band Width

What does this VIX Band expansion mean?  Well, this trend may not have peaked yet, but it does seem to indicate that there may be a large market move in the coming weeks/months (likely before year-end).  What direction will we go?  Well, the underlying trend since March is certainly bullish and liquidity is flowing into the world's markets like Niagara Falls ... but this is actually a big picture retracement rally within a bigger downtrend move.   Additionally, we have run up over 50% since March, so one may presume that the current uptrend is a bit "tired".  So I would lean to the downside, but the more concrete angle is to bank on a big move in either direction, utilizing your best technical analysis to determine what directional trend we are in or enter into.

Moby Waller
BigTrends.com
1-800-244-8736

Disclosure:  None

International ETFs have exploded in popularity, largely due to the fact that they make it relatively easy for an individual investor to trade a singe focused country or region.  Remember, however, that ETFs differ from each other, sometimes in huge ways, so be sure to investigate the holdings and structure of an ETF/ETN before you invest or trade in it.

Let's take a look at the top-performing International ETFs on a Year-To-Date basis for 2009 (data source here):

2009 YTD Top Performing International ETFs


The top performers of 2009 thus far can basically be summed up with the acronym BRIC.  This stands for Brazil, Russia, India, China -- the 4 countries that many perceive to be the "future economic superpowers".  Such popular single-country ETFs as Russia (RSX), Brazil (EWZ), and India (WPI) (PIN) are near the top of the list.  Several Asia region ETFs are spotted, many ex-Japan.  Another region that is represented is Latin America, through the (ILF) ETF.  A couple of other smaller country names appearing on the list are Thailand (THD), Austria (EWO), and Israel (EIS).

Now examine the YTD worst performing International ETFs below:

2009 YTD Bottom Performing International ETFs

You can see that this list is dominated by the established large economies of Japan (EWJ) and Germany (EWG), and various combinations of Europe/Japan..  Another interesting region that is on here as an underperformer is the Middle East, through the (GULF) and (MES) -- this is likely due to lagging oil prices in 2009.

Bottom Line:  The aggressive growth areas of the BRIC regions, similar to what used to be called "emerging markets", have outperformed this year, while the more established, older economies of Germany/Europe and Japan have underperformed.  It is worth noting that the BRIC countries either have a large commodity portion of their economy (Brazil, Russia) or are emerging consumer giants (China, India).  Certainly there is a long-term demographic trend in favor of these countries' economies advancing quicker on a relative basis to the older more-established "Western" economies.  Before plunging all your money into the BRIC and shorting Japan/Germany, however, remember that history has shown that this year's hottest performers are often next year's laggards, and vice-versa.

Moby Waller
BigTrends.com
1-800-244-8736

Disclosure:  No current position or client recommendation in the securities mentioned.

The Financial sector led us into the market meltdown of the past couple of years.  Since the market bottomed in March, however, Financial shares have led us higher.  So what is this important sector, specifically the Banks, telling us now?

Let's take a look at the performance of the diversified S&P 500 Index (SPX) (SPY) versus the long-standing KBW Bank Index (BKX).  In the first chart below, you can see that the BKX has basically doubled the gain of the SPX since the March 9th market bottom.

SPX vs BKX Performance Chart since March Bottom

However, this outperformance trend appears to have shifted over the past month -- examine the next chart.  Since October 14th, the BKX has lost about 13% of its value, while the SPX is down only 2.5% in that time frame.

Given the importance of the Financial sector, especially Banks, to the economic health and recovery of the U.S., this divergence looks to be a possible ominous sign for future broad market performance.  Many have long considered Financial stocks to be a leading indicator for the markets.

SPX vs BKX Performance Chart since October 14

What comprises the BKX Index?  Following is the holdings as of 11/04/09, source here.  The top 5 holdings, each over 7% of the Index, are Bank of America (BAC), Citigroup (C), JP Morgan (JPM), US Bancorp (USB), and Wells Fargo (WFC).

BKX Holdings

Bottom Line:  I would view this current underperformance by Banks to be a serious warning sign should it continue and/or accelerate.  It may be indicating that there are further legs to drop in the global financial recovery. 

Moby Waller,
BigTrends.com
1-800-244-8736

Disclosure:  No current Bank sector or stock position or client recommendation.