Darshan's Blog

Darshan's Daily Market Ponderings

Monday 16th November, 2009*

Will Options Expiry Week Help The Bulls?

Hope you've all had a splendid weekend? It's Monday again and before I update you on what I think will happen in the markets this week, let's take a look at the new tally of failed US banks, since last Friday...

3 new banks were seized on Friday and the 2008 total now stands at 123.

Right with that bad news out of the way, what is the Dow doing back at the 10333 level? Quite, simple really, as suspected the USDX has come down to retest the support it found last week and in doing that, has provided a lift to the markets. All of them. Asia performed strongly, with Shanghai jumping a whole 2.7% and it definitely looks like the markets will test those higher levels we are looking for before things get very nasty (1121-30 on the SPX, 10500-600 on the Dow, 5400-5500 on the FTSE). How we get to those levels is another matter. The key point is that we are at critical points in the markets and it is Options Expiry week - which generally tends to have a bullish bias. However, will it be that straightforward for the bulls? No!

My main concern still stands - the broader market is just not liking the rally in the blue chips. The SPX has finally broken above 1100 again but it needs to do that in the cash session - until that happens, it is merely trading in a 20 handle range. Is it ready to breakout today? As far as I can see, the Dow is facing resistance only about 40 points above where are right now (at 10375) and it could be good enough for everything to come down...enough for the Dow to test 10050-10100, before it takes off again.The banking sector is also showing declining money-flow behind the scenes. What we have is a truly confusing and yet balanced market - everything depends on something else and everything can only turn together. For example, The dollar held sweetly above that 74.75 level and now could be forming a double bottom? So this should mean that the indices top out here but last week, I did say - they could be setting another trap - whereby the USDX bounces (It did) and then comes down to break through 74.75 - to bottom at either 74 or 71. So what is goihg on here, do we get a double bottom and thereby a much needed pull back in equities, or do we cave through and just hit those upper targets from the off this week?

If this was not all confusing enough - Nymex crude oil is forming a bull flag - with a target near $88-90 - which would definitely mean a new low for the dollar index, and those new highs for equities.All in all, it feels like we're going to go higher but it won't be a straight forward path there. Seems looking around - people are either looking for a rise to 10500 today or a drop into the abyss. I'm not convinced that either of those two will happen just yet. I think we're in for a slow and annoying up down up down process over the next couple of weeks.

The risk is always to the downside but you just can't trust the Fed in the short-term. Too many bears have learnt that the hard way. In the meantime, President Obama is visiting China - seems quite a move by the USA...as the US debt clock reaches it's extreme limits - we are seeing the most powerful man head on over to China to reassure them about the USA's future. It won't help that Liu Mingkang, China s chief banking regulator, has been very vocal about the weak US dollar's role in creating a risk bubble in the markets. So yes, another thought to throw into the pot.

This week is going to be testing for any trader and with so many conflicting signals - market momentum up, but technicals throwing warning signs - I think we can easily see 10050-10100 on the Dow this week and 10500+ within the next two weeks.

I hope that sort of helps - we just need to get Monday out of the way, so we can see where they are taking this.

Happy trading and good luck!

Darshan

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