Market likely to remain rangebound next week

I would expect that the Monday following expiration would reverse (at least initially) the intraday trend which is prevalent on expiration Friday. Since the trend today has been down for the most part, I expect Monday to begin on a positive note.

 

However with volatility low, sentiment complacent, and market internals having been struggling for quite a while, I also expect rallies not to have any significant momentum either in price or time. On the other hand, the market has several layers of support should downside reassert itself. Given that positive seasonality would exert some upward bias, my take is that range-bound action should continue to dominate.

 

Support on the SPX is 1265 followed by 1250, and that of the NDX is 1688-90 folowed by 1670-72. Dips to these support levels should present short term buying opportunities.

 

Thumbs Down for options expiration

I hereby give the price action on this options expiration day a big thumbs down!

Do not chase the market when breadth is lagging

When breadth as measured by the Russell 2000 index is lagging badly like today, it usually does not pay to chase strength.

Jeff Cooper says ...

Bullishly -- at least potentially so -- the S&P has offset the small sell signal that we spoke of the other day, the "tail" from Dec. 5.

As we anticipated in Monday's commentary, momentum would rear its head well before Friday's expiration. Now, the question is will we get a continuation of momentum above the important 1275 resistance? Remember that 1270/1275 S&P was a projected band of resistance bias over a month. Any continuation of the rally above 1275 suggests more blue sky into Friday's expiration, with shorts being shaken out along the way.

If the market can withstand what is many times a post-expiration hangover after the weekend and continue to advance, it opens up the notion of targets just above 1300 S&P.

Conclusion: With the S&P clawing its way up to the upper band of our resistance, follow-through is essential on Thursday and Friday. At the same time, do not get complacent. If this phase of the rally is largely driven by the push and pull of put and call premiums, then a break next week below our 1263 pivot must be taken seriously.

Helene Meisler says ...

Nasdaq's overbought/oversold oscillator provided us with a negative divergence on momentum weeks ago when Nasdaq made a higher high and the oscillator did not follow suit. And now you can see it seems poised to head lower once again.



Then there are the number of stocks making new highs on Nasdaq. That too failed weeks ago. First it failed vs. the highs made last summer. Next it failed as Nasdaq kept rallying, and we have not been able to surpass the readings of November now.



Finally, the McClellan Summation Index has stopped going up. We have seen this happen before when this indicator stalls and appears ready to rollover and it turns out to be just a little breather. However, if Nasdaq does not have a decent rally within the next few trading days, this indicator will roll over and that would not be good.

So Nasdaq can save itself, but it must start rallying soon -- within the next two to three days -- and should it manage to rally, it will need to do so with some strong statistics (i.e., expanding new highs). Otherwise these indicators will all roll over and take the market with it.

The Current Stance

The current stance is to "increase vigilance" (Rev. Shark), to predispose that any rallies from here will lack upside momentum (Helene Meisler), and to regard any downside from here as evidence to suggest the S&P will likely get pinned close to the 1250 strike come expiration Friday (Jeff Cooper).

David Merkel opines that the rally off the Fed announcement will prove empheral and Cody Williard has covered a little of his short hedges while advocating patience. Rev. Shark has been a net seller into the afternoon rally.

Watchful and Alertness

Watchfulness and Alertness are very important ingredients in trading.

Today, the market gapped up at the open, but instead of getting off to the races, the market remained choppy for the first half of the morning.

The charts of the major indices showed overhead resistance being tested and the indices unable to get through the resistance. They were turned away the two or three times they made the feeble attempt to challenge the resistance.

In addition, Rev. Shark announced that while the setup remained decent, he was having some problems with a few of his small cap stocks.

Hence I decided to get rid of my long RUT position. And that was a good move, for now the market has begun to correct meaningfully.