This Week In Options: Where Is The Rally?

Check out the video below for a full recap of this week's outlook:

Scoreboard: Bulls got what they wanted, but still failed to rally.

A few weeks ago, the bulls ran out of hopium sources. The Fed's failed rally was a symptom of this. There is no positive catalyst for traders to buy: There are individual positive stories scattered about, but not enough to drive the markets.

The weekly candles are split, but mostly red. However, the week did end on a sour note where indices lost 1.6 percent and that was not the day's low (S&P closed 10 points off the low).

Weekly candles for the SPY, QQQ and IWM:

Europe led the U.S. markets lower from Friday's pre-market session and it got worse into the regular session. One third-party opinion suggested the Fed rally failure was due to "sell imbalances" that were anticipated for Friday when companies who bought back a lot of stock were scheduled to have their weight rebalanced in the indices.

This may explain Apple Inc. AAPL's reluctance to rally through Thursday, if they were big buyers of their own stock this quarter.

Going Forward

Having resistance above with some room to move and support below, but support becomes suspect when so many shoes loom above: Greece and China, U.S. debt ceiling and more. Any one of these can cause a revisit of the Flash Crash lows or more. If two issues trigger simultaneously, just imagine the impact on equity prices.

  • Apple played the role of the grownup in the room last week: Coming into Thursday, Apple resisted rallies; On Friday, it helped prop up markets from further downside.
  • Small caps: Pulled out a green weekly candle which is some comfort.
  • Greece: Market bulls need Tsipras to actually form a government in the coming days so to keep the bailout deal on track.
  • China: The risk of further complications still looms. The only saving grace is that markets have to an extent gotten used to these mega moves in their markets.

So what to do? When the headlines abate, perhaps eventually go back to catching quality falling knives like Apple and Google Inc GOOG (who have a mathematical base), but don't rush into anything.

Ranges

All the ranges played out within expectations. Still have a few headline potential situations, so the weeklies are a potential disasters in this environment. Markets need to settle here and creep up or more downside is likely.

  • VIX: Still elevated and indicating much nervous markets. This also makes it expensive to buy insurance for those who need it.
  • Other Variables: Facts did not change last week, only sentiment. Fed still raising rates and QE still dead in US; Eurozone still mired but with EQE; China still mystery and bubblelicious; Japan a scary experiment; Geopolitics still scary; Oil depressed, Greek mess still at hand.
  • Bonds are back in breakout attempt mode while the TNX back to 21.5.
  • Oil: Another failed rally down 4 percent on Friday, which may have contributed to the equity selloff.
  • Currencies are in full swing given the no hike. The outcome is still pending.
  • U.S. Fed: Janet Yellen may not have the guts to raise rates even in Q1 of 2016. She demonstrated a lack of leadership by saying the US looks good, but that she's afraid a quarter of point or even an eighth of a point would derail the progress. If that's the case, then the US is on the edge of a disaster and should be working on a QE.

Tickers

Goldman Sachs GS: Fins hit hard by no September hike vote.

iShares NASDAQ Biotechnology Index IBB: Holding up relatively well in such uncertainty, but now coming up on orange line which was support and now could become resistance. There is a risk of lack of future mergers and buybacks, which have been largely fueling this rally. If the recent drop repeats, then 300 comes into view (purple dotted line).

SPDR Gold Trust ETF GLD: The next level to watch is around 110 from where it could revert lower again or breakout towards 111.5 which is another breakout potential level.

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Posted In: PreviewsOptionsPre-Market OutlookMarketsTrading Ideas
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