The Weak Get Weaker In The Options Market

Check out the video below for a full recap of this week's outlook: Scoreboard: The week ended terribly for the bulls as they lost a 53 S&P e-mini rally off Thursday's low. Markets went red with minutes to close. The Nasdaq was the weakest of the broader indices at -1%; the small caps were the weakest overall at -1.4%. The DOW held small greens thanks to a few stocks like Nike. Here is how the Friday action unfolded (from top left to top right, to bottom left, then bottom right): The weekly candles were red but more importantly, LOWER HIGHS KNOCKING ON FLOORBOARD MAKES FOR A NEED TO BOUNCE FROM HERE, OR THE RISK IS THAT THE BOARD WILL BREAK WITH A WHOOSH LOWER!: Why the drop? Markets suffered tremendously from a decimation of the biotech/healthcare (more on this later). They are heavy weights in the indices especially in the Nasdaq. Next week: Friday's disappointment weakens the bulls' resolve which was already very weak. So rallies will likely be sold in the absence of positive catalysts. One could come from politicians. They could surprise us with a resolution of the debt ceiling issue. If not then the debates could turn into debacles and accelerate the selling. Caution is warranted! This contradicts the open interest (OI) data which still suggests that options markets are bullish in their expectations. I don't fully trust the OI to hold in the face of headlines. We had a bullish set up for this week and we saw what happened. Apple is likely to move on Monday on reports of results of its new phone launch. The sales will be impressive but there is a chance that much of the good news is already baked into the stock. More on this later. Banks could cause more pain for markets next week. Friday, the financials were strong but only because rates spiked. This will eventually wear off and the financials will realign with the general market direction. If so then this could be incremental weakness to this week's performance. We could get a negative head about the German economy. We are likely to see a cut in the outlook for Germany as a result of the VW debacle. This will adversely affect the US markets unless Draghi increases his QE (unlikely before ECB next meeting). The effects from the confusion that Yellen caused this week could spill into next week. Even traders (like myself) who were sure of our opinion of lift-off timing, are now in doubt. She contradicted herself saying: that she needs to raise rates but then she says she can't only to follow it up by but she will... confused? Don't overthink it: Rates going up soon enough. Focus point - Apple: Holding up well but stuck in a rut. Based on Thursday's price action I told you that 113.5 is likely to be a magnet and it was. Friday it tried to rally past 117 only to sink into red and under 114. The easiest way to trade Apple is on fundamentals; meaning don't overthink it. Focus Point - VW: I read that the German auto industry touches 1 in 6 jobs so it will have a ripple effect on the economy in Europe and the globe. 11MM vehicles will cause a lot of financial damage to VW and will spill into other industries. The impact will have a considerable effect on the entire Eurozone and beyond. This will also complicate the rate hike since it will likely necessitate more Euro-QE. Raising rates in the US coupled with more QE in Europe would cause a more dollar strength(bad for US exporters). Ranges: All the ranges are playing out within our expectations. Markets tested the limits. ALL indices are at MUST HOLD LEVELS! Caution is most definitely warranted for bulls. Other Variables: Facts did not change only sentiment. So no Change in thesis. Here are a few of what's on our plate: China, Grexit, rates, weak oil, etc. Tickers: NVAX: 9/25/15: I warned you abt NVAX a few days ago. Today's low (not pictured here) is inside my box already. IBB: This week's candle rivals that of the flashcrash in amplitude. What's more significant is that it dwarfs it in volume. This highlights the risk I've been raising from the Biotec/healthcare sector. Yes, they are in bear territory but like the China mkt, this doesn't mean they can't go MUCH lower.