The Ultimate Bull Trap, Did You See It?
Today's bullish action was the biggest load of flim-flammery that I've witnessed in a long time, but it also reminds me that even self-proclaimed veterans of the stock market can make rookie mistakes if not careful!
Here's what i'm talking about....
Please tell me you didn't skip right over that massive bullseye, which is that gap today from 905 to 916. When oh when was the last time that the S&P 500 was able to leave such a massive gap on the chart to the upside without a closure of that gap. I'd probably go so far as to say its been well over two decades.
This rally was spurred by flim-flammery and poppycock! To borrow from the Clinton administration, its the options stupid! I, like an idiot, failed to look at the underlying July contracts and "should"...key word there... have seen that there were a huge amount (250k or so) of SPY July 93 calls outstanding. Traders would have done anything short of SEC fraud to get the S&P 500 to the 930 level which is not surprisingly where we died today. Key point here, let the open contracts give you a hint where traders are making their bets. Not surprisingly, where is the open interest in August? You bet, the August SPY 80 puts!!!!! Over 360,000 contracts open...that's HUGE! Did I get monkey-raped for lack of a better word by today's rally? Yes! Am I worried that I'm going to recoup my losses? No! This is the biggest headfake since Ryan Leaf was proclaimed the next Dan Marino! Don't be trapped by the massive short squeeze we saw today. 840 is highly probably within 4 weeks, mark my words.