Predicted: Stock Market Rallies
If you were following my Rant and Rave blog articles at InTheMoneyStocks.com, this rally was accurately called. The SPDR S&P 500 ETF (NYSE:SPY) is trading at $129.45, +1.03 (+0.80%). The reasons to expect a rally today were simple. First, options expiration is next week. This may not seem significant but it is. Institutions sell a majority of the options to retail investors and smaller hedge funds. With the mega bearish sentiment, a huge amount of puts had been bought in the last month. A put is a bet the market will go down. Those puts are significantly in the money and the large institutions are set to take big losses. The one way to reduce those losses and possibly turn them into a profit is to have the market bounce. Considering the power of these mega institutions, the markets were going to bounce.
In addition, when studying charts like General Electric Company (NYSE:GE) or other market leaders like Bank of America Corporation (NYSE:BAC), it is clearly seen that these stocks are into support levels that are massive. The likelihood of these stocks not bouncing at these levels was remote.
As if those reasons were not enough to cause a bounce, sentiment on television and in the media was as bearish as it has been in months. This creates a bearish feeling among the retail viewing public. In turn, the retail investor sells marking a short term low in the markets. This has always been the way the markets work, today is no different.