October 25th Options Expiration – Rally to new highs and open interest

Last week was very impressive. Not only did we close at all time highs, but we had an impressive amount of stocks reaching new highs coupled with heavy accumulation days confirming the recent rally. If you recall from a while ago I had a target of 1746. We got to 1745.31. Does that mean I think the rally is over? Not necessarily. Currently there isn’t any signs of us pulling back. Selling the news last week didn’t work and trying to short because ‘we seem overbought’ or ‘stocks have already gone too far’ does not a short make. Focus right now should be on earnings.

A few weeks ago I wrote here about the possibility of an epic end of the year rally. I have been seeing more and more people now expecting that, which of course now makes me feel less confidant about it. However, just because people are starting to pick up on the idea that the next few months will see stocks rocket hire, it doesn’t mean that is where they are positioning there money. Every time we get to new highs and pull back slightly, we see shorts increase and fear mongers come out. So even though I’m still in the rally camp, I am very open to changing my mind. For next week, if we pull back look for support at the old highs around 1729. Below there we have 1709 -1711 and then 1698.  Below there and I would look for one of those 3-5 percent pull-backs we have seen all year. With regard to upside targets, well we are in free air up here.

We already know that the russel and nasdaq have been on fire. One thing to note is that the financials are now starting to pick up again. Most of the big banks we typically trade have already reported. Despite mixed earnings results, the financial sector ETF (XLF) closed at its highest level since October 2008. In addition, there was decent amount of volume the last couple of weeks. I know the argument regarding volume has been a touchy subject for bears. As I mentioned before, perhaps bears will finally begin to see the volume that in there mind will validate the bullish market we are in. Meaning, if people really do finally begin to put there money into stocks, volume will pick up…..then maybe when no one is talking about a top anymore and complaining about low volume is when we should become much more cautious.

Open Interest 
A short note on open interest. When we are in a flat or a slowly trending tape most high beta stocks stay within their highest open interest calls and puts. When many stocks close above their high open interest calls, as has been the case recently, this demonstrates a very strong bid underneath those stocks as well as the market in general. If things continue to be exceptionally bullish then ride your winners and don’t look at the open interest as the end all be all. I post them for those that want to get a feel for where price stands in relation and not as a concrete prediction.

SPY: Everything after 169 is fairly flat. Interesting to see that as we closed at all time highs.

AAPL: No denying the bullish nature recently. It was able to close above the very high 500 call open interest last week, definitely an impressive feat. Having been up eight days in a row I wouldn’t rule out a pull back or some healthy consolidation, but the current trend is up. It would be good if it could stay above next weeks high call open interest also at 500. They don’t report till October 28th, but they do have their IPad event this Tuesday. I’m sure we will be hearing a lot about selling the news. I hope there is a sell the news reaction because I would like a nice entry point.

AMZN: Last week I said I would really be watching this one and well I did. I watched it do nothing from Monday to Thursday. Although it didn’t rally like other stocks all week, it continued to honor its 305 support and so I finally decided to buy on Thursday when 305 held again. Obviously that paid off nicely. Earnings are Thursday after the close and if the market participates watch for a possible chase into earnings. The market is currently pricing in $21.40. 
BIDU: Closed at all time highs likely helped by GOOG’s earnings. Chinese names are hot right now and until that trend changes look for higher prices to come. The highest open interest is on the put side, which tends to favor the bulls.

CMG: There was that solid breakout I was looking for. Closing at all time highs, CMG is often difficult to trade with large spreads and fairly large price swings. Consider waiting for a pull back to get in. The highest open interest is the 490 puts. If it fell to 490 I would definitely consider trying a long there.

FB: Unbelievable strength since their last earnings. If they really are figuring out how to monetize on mobile and increase advertisements then we can see another huge earnings release. Earnings aren’t till October 30th so it remains to be seen if this will continue to be bought all next week in anticipation. Personally I don’t want to chase, but will look for pull backs to support to buy. Highest open interest is the 55 calls.
GOOG: That stock probably changed some option players life, both some for the better and some, well ouch. Highest open interest is the 990 puts.
LNKD: Likely helped by GOOG, it finally got above key moving averages that has recently acted as resistance. It definitely has been under-performing its peer group as of late. Lets see if this was the boost it needed. It doesn’t report till October 29th. 
NFLX: Had a bit of a choppy couple weeks, but closed Friday at all time highs. Whether that continues will likely be revealed Monday when earnings are released after the close. The market is currently pricing in $36.60. Highest open interest is the 400 calls.

PCLN: No longer solo in the 1000 club. Has recovered from a recent pull-back and market willing will probably resume its uptrend.

TSLA: It has not acted in its typical manner of going straight up, but I continue to think that it doesn’t mean its a short. I posted open interest several times last week showing lots of puts sitting at 180.  Whether that is why it remained proped up or not, 180 seemed to hold strong. The highest puts and calls sit at 180 for next week.