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The Witches of Speedstick


As long as those levels hold, the trend is your friend.


Good morning and welcome back to the spooky schvtiz. With today's quadruple witch, we'll say adios to June index futures, single stock options, index options and single stock futures. This process typically tosses a wrench in the collective mechanism and, while much of the "action" typically takes place in the days preceding expiration, it'll surely add to today's flava. Keep in mind that, for the most part, the sector indices expire on the opening while the individual names have all day to find their pins (expiring on the close).

As for the Minx, she pulled the ol' Jedi mind trick yesterday and, after giving Snapper a brief glance, rode the financials lower into the bell. The S&P closed on "a" trendline (from May 30) while the (outperforming) NDX held above its first trendline at 1215. These aren't to be confused with THE trendlines (from the March low) at S&P 980 and NDX 1180 (closing basis) but, in our efforts to take our journey one step at a time, they warrant a mention.

So, here's the dilemma, Emma. The conditional elements of a significant pullback are clearly present in the marketplace. The bull camp is loaded to the gills (crowded), sentiment is giddy and traders are leaning the long way (into a perceived end of quarter ramp). What's emerged is a high stakes game of financial chicken between the brazen bovine and slap-happy ursine. If they rip higher, it's par for the upside course and a fitting ending to a strong quarter. If they fail, however, you're gonna have a lotta bulls trapped in a crowded theater.

Will somebody yell "FIRE!" and start the bottleneck at the exit? There was low-level chatter yesterday regarding the weakness in the Japanese government bond market and, while they bounced overnight, the bears have started to mumble and grumble anew. The truth is that one of three things is likely to occur: A spark ignites the fire and some holders panic at the sign of smoke, the Minx simply wilts as a function of exhaustion or, perhaps, this is simply another half step back before three leaps forward.

The key to the tape, in my humble view, is the financial sector. While the four-letter freaks have clearly "wanted" to rally, the broke and brokers, along with the piggy banks, have weighed on the parade. The BKX, which busted its initial trendline from May 20, has a much more important support zone at 850 (trendline from the March low). That's the level that's gotta hold if this drubbage is to be considered "healthy." (Note: The corresponding trendline for the brokers is XBD 510).

I've gotta ready myself for the expiration so lemme hop. On a quick side bar, I would like to thank the multitude of Oryx fans who were quick to correct me on the "born with horns" trivia question. Man, I didn't know there were so many Oryx fans out there! Regardless, we strive to do the right thing in Minyanville and, as Dean Mendes was the first to make the observation, he'll get his choice of a Minyanville tee as well. Wasabi!

Have a good day.

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