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Manipulation: Bullish Case For The Week

May 16, 2011 12:14 PM ETUUP
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 The markets are hovering slightly higher, after a gap lower this fine Monday morning. The SPDR S&P 500 ETF (NYSE:SPY) is trading at $134.34, +0.30 (+0.22%). This move higher is due to the weakness in the Dollar. Always remember, the markets will move inverse to the Dollar. The PowerShares DB US Dollar Index Bullish (NYSE:UUP)$21.57, -0.12 (-0.55%).

The markets will most likely have an up week for one main reason. It is options expiration. Institutions sell a majority of options to the public and to various funds. These institutions have a bias towards wanting those options to expire worthless, thus the entire premium is profit.  The more put options (downside expected) are bought in the month and weeks prior to an options expiration, the more likely the market will go the opposite way into options expiration. Driving the price of a stock out of the money is a favorite past time of institutions. They can make billions this way over the course of a year.

Over the last month, the markets have started to get jittery. The downside is something seen much more often as the Dollar has rallied strongly off the lows and the Federal Reserve winds down their print money policy of QE2. As this has happened, short interest has increased dramatically in the market. This implies many more puts have been bought over the last month as well.

Knowing the downside is being favored by the retail investor through shorts and puts, it is likely that this week will end flat to higher as the institutions try and capitalize on the options game. While this week should end higher, the market most likely will resume its downward trend following this week.

Gareth Soloway

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