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Markets Sell Again, What You Must Know



January 20, 2011 – Comments (2)

The markets sold for the second straight day, dropping sharply as commodities took the brunt of the sell off. The SPDR S&P 500 ETF (NYSE:SPY) opened slightly lower on the day and then collapsed, much like yesterday. The SPY is trading at $127.40, -0.85 (-0.66%).  The key to the drop today was continued fear from China. The Shanghai Index has dropped approximately 7% this week amid fears that China will continue to raise interest rates. Just last night, China reported stronger than expected GDP.  This continues to fuel the fears that they will continue to cool off their economy. Oil, Gold and all other commodities are getting smacked today.  The Dollar is higher as well.

Commodity stocks are taking the brunt of the sell off. The Mosaic Company (NYSE:MOS) is down another 5% on the day after dropping over 10% yesterday. On Tuesday, the stock traded to a high of $85.45. Today, the low is $72.19. While it has been hit hard, there is a possible swing trade bounce play at the 50 moving average on the daily at just under $72.00. Other stocks are dropping sharply as well. The strongest stocks for the last couple months have been Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX).  These two stocks have propped up the indexes by themselves. Today, they are dropping sharply.  XOM is trading at $77.12, -1.12 (-1.43%) while CVX is trading at $91.88, -1.09 (-1.17%).

The biggest question is, has this market topped?  Right now, the markets are set to confirm a pivot turn to the downside in the short term. However, extreme caution must be used because this is options expiration week. During options expiration week, institutions will push the markets in the opposite direction from where they have been going to get options to expire worthless. The amateur, uneducated investors are usually the ones that buy the options from the institutions. Therefore, it is common to see the bigger, more powerful institutions manipulate the market to get those options to expire worthless, thus the institutions retains the full premium which is pure profit.

Assuming this market ends near the lows of the day, one must believe a short term top is in. However, my personal short positions are smaller in this down turn than usual because of the options expiration influence.  This is called smart and disciplined trading. It is the key for any swing trader or investor.

Gareth Soloway

2 Comments – Post Your Own

#1) On January 20, 2011 at 12:10 PM, Brent2223 (36.61) wrote:

Sorry for the ignorance, but when does 'options expiration week' occur?  Monthly, quarterly?  This is good info to know, as it looks like it may push the price of stocks around with no underlying business reason.

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#2) On January 20, 2011 at 12:32 PM, davejh23 (< 20) wrote:

If we close tomorrow near current levels, I'm betting on a significant pullback in the weeks ahead.  We'll close with some bearish setups on the daily and weekly charts that we haven't seen for months...since Spring when the market started to fall.  I don't believe we'll see a huge selloff to break the Fall lows, but 10%+ wouldn't be out of the least for small caps...we were almost half-way there at today's lows.

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