S&P Watch: Don't Dismiss Today's Sell-Off

By Jeffrey Cooper  AUG 14, 2009 1:50 PM

A real pullback isn't entirely out of the question.


Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.

It’s anecdotal at best, but the vibe on the tube is elegantly cocky as to the nature of this sell-off.

For example, from one floor trader:

“I don’t see any of my clients wanting to lay out shorts anymore. The hedge funds made the short bet 100 S&P points ago, now what…. What are they looking for at best a pullback to 960. It’s an opportunity.”

And: “ There is nothing in the monthly charts whatsoever that would signal any kind of meaningful pullback.”

I think "nothing whatsoever" is a stretch, technically speaking.

See weekly chart of NAZ from 2004 from my morning report the other day.

Click to enlarge

And why did the market rally yesterday on bad news (e.g. retail sales)?

Often you have to peek behind the market’s kimono to get a glimpse of the dynamics dominating.

Yesterday was the Thursday the week before options expiration.

Option expiration arbs often mislead or misdirect market participants with a strong rally on the Thursday the week before expiration if the agenda is for a down expiration -- and vice versa.

No matter how bullish you might be, patience to wait until a pullback plays out into at least expiration may be rewarded. This happens to coincide with the 2-year anniversary of the Bernanke/Paulson "all is contained" mid-August low in 2007.
No positions in stocks mentioned.

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