Marketview: Expiration Week Changes Everything

This week is an important one for the market and the overall bull case.  I’ve posted what I feel is a bullish scenario playing out despite the fact that my long-term MAMO indicator officially turned bearish on Friday.  The market feels quite vulnerable to a bear assault but it is still quite normal to make another run at the highs before giving back gains (See this post).  The historical patterns say we should get another nominal high at the very least, while the MAMO indicator is flashing a big warning sign.  Overall, we are late in the game for this bull run, but I still think there is some gas left in the tank.  Is there conflicting data?  Sure, but what else is new.

The past week laid some damage to some important sectors, namely technology and financials.  Defensive stocks were well bid in a flight to safety and stability.  This is not the scenario you want to see as a bull.  For the market to make any serious headway to the upside you’ve got to see technology working higher.  The tech sector must be in a leadership position for any rally to stick.  This weakness could manifest itself in another move lower before the next round of buying comes in.

Option expiration has had a bullish skew in recent history with six up, 3 down, and one flat in the last ten occurrences (weekly bars).  We could easily make some new lows and stage a turnaround that catches everyone off guard.  Tuesday’s trade will be absolutely critical to getting the week’s direction correct.  If we sell off hard Monday and Tuesday doesn’t bounce, we’re likely looking at the lows of the week coming in on Friday’s trade.  If we bounce Tuesday or rally from Monday then we’re likely looking at the highs of the week coming in on Friday.

Winners: $NWSA, $DIS, $PFE, $PEP, $VZ, $T, $EXC

Losers: $JPM, $MS, $GS, $FCX, $EMC, $ORCL, $CSCO

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