Buy The Coming Dip...?????????

Discussion in 'Wall St. News' started by S2007S, May 29, 2007.

  1. S2007S


    Here is a no risk article, 100% guaranteed only to go up!!!

    Market Outlook
    Buy The Coming Dip
    Bernie Schaeffer, Option Advisor 05.29.07, 12:46 PM ET


    Following the old Wall Street axiom "sell in May and go away" would have left many investors holding the short end of the stick this year.

    While there are still three trading sessions left in the month, the Dow Jones Industrial Average (DJIA) has tacked on 3.4% and the S&P 500 Index (SPX) has edged more than 2% higher. But the Dow could be facing some rough sessions as it attempts to close out what started as a strong month.
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    In the sessions surrounding the 2006 Memorial Day holiday, the Fourth of July holiday and Thanksgiving, the Dow Jones suffered triple-digit losses. In addition to the general malaise that could strike trading, the SPX is struggling with a series of "speed bumps."

    Despite a few attempts to break out, the broad-market index has yet to close above 1,527.46, its all-time closing high achieved on March 24, 2000. Above this bump is the 1,553.11 level, marking the index's all-time intraday high.
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    Added to this thick soup of resistance is a heavy accumulation of calls at the 1,540 and 1,560 strikes. In the June series alone, there are nearly 266,000 open calls perched overhead between these two strikes. These bullish bets could act as a troublesome roadblock during the near term.

    Shifting gears slightly to the S&P 100 Index (OEX), we find another annoying "speed bump" at the 700-level. This psychologically significant round-number level has succeeded in rejecting the index since May 18.

    Meanwhile, put open interest is swelling on the SPX. During the past week, the number of put contracts on the SPX increased by 593,000 contracts, more than doubling the number of new call positions added during the same time period. While institutional traders may not expect a correction, it could just be a case of institutional investors chasing the rally, but chasing with caution. In other words, index puts are accumulated as institutions accumulate stocks.
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    Since institutions and hedge funds are the only players in the market, as they get overly invested, as is evident by rise in index put accumulation, the market has tendency to run out of gas. However, the index puts suggest any corrections will be short lived and shallow in nature.

    This building put open interest is also very interesting in that it confirms what I've been saying for months in this column about the tendency for portfolio mangers to accumulate index puts as the CBOE Volatility Index (VIX) declines to levels that are attractive for picking up portfolio insurance. As trading opens again following the Memorial Day holiday, the VIX is hovering close to the 12-zone, which has held as support on a number of occasions since mid-March. We are now faced with the potential for a VIX bounce to 14 to15 from this support level.

    Another point worth noting is that bond yields are trading at the top of their range, and a move back into the range would imply weakness for stocks.

    Despite being a short week, it will not be without potential fundamental catalysts that could work to temporarily derail the current uptrend. Thursday kicks things off with the revised first-quarter gross domestic product (GDP), which is widely expected to be lower from its initial reading. Then Friday floods the Street with the May nonfarm payroll figures, the May Institute of Supply Management report and the Core PCE Inflation report. Any weaker than expected reports could act as the spark that lights selling fire that could consume the Street.

    However, I'd fully expect such a pullback to generate more than enough bearish sentiment to set the stage for a major push by the S&P to all-time highs and beyond, as the major drivers for the bull market--skepticism, put buying and short selling in the face of strong price action, reasonable valuation, and massive liquidity--remain firmly in place. I'd therefore advise all but the shortest-term traders to forget about trying to position for the pullback.
  2. Allaces


    Buy the dipshit

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