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Stocks stabilize as triple-witch Friday comes to an end

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The broader market averages have stabilized and have been edging up from their lows in the past three hours, just as the US Dollar Index (dx00y) 108.17 -0.7% has inched up from its earlier session lows of 107.96. While these are shorter-term observations made today, traders and investors can perhaps understand the correlation as it pertains to trading in the weeks ahead.

We've perhaps seen some impact from "triple-witching" expiration. Earlier today in the Market Monitor at OptionInvestor.com, I was looking at shares of Microsoft (NASDAQ:MSFT) $52.90 -2.23% and felt this might be a stock that got "manipulated" slightly lower to the $52.50 level as institutions try and take the stock to a more "neutral" level between larger open interest levels of $50 and $55. The session low on that stock has been $52.51 and this type of action indeed hints that there is some positioning taking place based on stock option expiration.

This type of action seen in MSFT gives some insight perhaps to other stocks that may be trading somewhat "contrary" to what the trader would have thought should take place under current market conditions when the broader market averages are all trading down better than 1.5%.

It is very tough to try and "make clear analysis" as to why a stock may be trading like it is on an option expiration. While there may be some type of underlying fundamental reason for investors to be buying or selling a stock, it is also a great likelihood that price action is being dictated as any options or option-related hedges are unwound.

While the US$ has edged up from earlier lows, we have seen the Gold/Silver Index (XAU.X) 77.83 -1.34 lose some of its earlier luster.

While shares of Bema Gold (NYSE:BGO) $1.61 +6.62% have outperformed the XAU.X today, I did suggest that short-term bulls in the stock from yesterday look to lock in some gains at the $1.65 level as a short-term trader probably wasn't seeing the more institutionally held stocks like Newmont Mining (NYSE:NEM) $28.52 -1.95% find the same type of bullishness as the more "speculative" and smaller cap stocks like a BGO.

It is rather fascinating in a way at how some of the market averages have really been reacting to today's intraday moves in the currency market.

Next week could be a wild one. As many positions are unwound this week, we may see some type of "whipsaw" and volatile action next week.

What could cause some volatility into next week is what type of "new" positions might be put on as the MARKET digests some of the things going on with the U.S. $ and the thoughts of the underlying economic data.

I do think that yesterday's Philly Fed reading gave economic bears something to chew on.

One of my "economically" sensitive groups has the Dow Transportation Average (TRAN) 2,746 -0.03% continuing to trade strong for the third consecutive session, after this weeks break above it 50-day moving average. Again, this is a sector that tends to lead, or show strength under an early economic recovery scenario.

Also holding gains is the Dow Jones US Home Construction Index (DJUSHB) 386.59 +0.10%. This is a group that bears have wanted to hate under the scenario of a economic collapse and a housing bubble burst. While the recent bullishness could indeed be option expiration related, one has to wonder if this groups bullishness is a truer sign that the consumer is still confident in the economy, willing to buy new homes and the durable goods that can keep the economy in recovery mode.

Jeff Bailey
Senior Market Technician
Option Investor

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