Last week here I suggested that there was likely a new high to be made. That indeed worked out, but for the first time in a while some cracks* began to show late in the week. I am not ready to call for a pullback and would not be surprised to see another new high in the next week or two; however, I do think that if it happened next week it would be short lived. In the same regard, I don’t think the market is ready to roll over just yet so if the market begins pulling back next week without making a new high or at least getting very close to the all time high, I think it is still a buy the shallow dip market, not a ‘start shorting the new lows’ market.
SPY-W: (19 of 25 pins since Wednesday expiration inception. Last week failed**) The best take-away from this Wednesdays open interest is that it will be tough for SPY to close over 241 at expiration if those calls remain in the OI. It would not be unheard of as we have seen price close over its high calls several times since the election (a rarity in such a short period unless we are embarking on a new normal). However, with Thursday and Friday’s market action, it does seem more likely than not that price will not exceed those calls or fall back if they only slightly breach them. The current best pin is anywhere from 237 to 239, but could get more defined as the week progresses. If there is a close below 237 Monday or Tuesday, then there is the possibility that price falls under those 235 calls, but for now that is a less likely scenario.
SPY-F: (13 of 20 pins. This one was a success*) The current best pin is 240 with support at the 235/236 area. It’s important to note that because the 240 calls and puts were likely put on by one fund, they may act less like a typical pin then when they are developed more naturally by many traders. Thus, it may also be the case that 237-238 is really the current best pin. The best take-away for the moment is it will be tough for SPY to close above 240 on Friday and there is decent support at the 235/236 area.
In sum, based on Thursday and Friday’s action as well as the current open interest, it seems most likely that the market will at least pause next week. If there is a new high next week then I don’t think it would hold very long. If there is not a new high, but rather a pause/slight pullback, then I don’t think the market is ready to roll over yet. Note there is one thing that could happen in the next couple weeks to make me believe we still have a ways to go before even considering a slow down – but of course I’m saving that for subscribers. If it happens I will mention it in my post.
*If you are interested in learning more about what I see during the day to suggest there were “cracks” or the one thing that would make me think this rally still has a lot of room consider subscribing. Subscribers not only get set-ups and real time trading alerts, but they get commentary throughout the day that covers open interest, individual stocks, as well as what I think the markets next move is likely to be. For example, here are a couple from Friday.
This was sent out early Friday morning when SPX began trading inside its gap from Wednesday morning. Even if one didn’t want to take a trade off of the information, it probably would have helped anyone who had shorting on their mind.
I also sent out a tweet showing that intraday the market had gotten itself oversold, which also suggested it would likely close higher. As I said above, these are just two examples of the type of commentary subscribers get all day. They also get a thorough weekend post, set-ups and my trade alerts as well. Come join us.
**An explanation as to how I define pinning can be found here.
Wednesday 3/1: Failed pin to the upside.
Friday 3/3: Successful pin.