Option Investor
Market Updates

The markets can be tricky....

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In this afternoon's market monitor, I talked about a potential "trick" that might have been played on short-term traders in a very AGGRESSIVE bullish play in Akamai (NASDAQ:AKAM) $2.09 +6.25% at the $2.12 level on an intra-day basis.

That observation was intended only as a very short-term trader's observation of a trick I had learned from a fellow market maker in NASDAQ stocks.

However, that got me a bit suspicious. While some people may think that a trader that is always looking for trouble needs some psychological help, the ability for a trader to always be looking for trouble will not only keep the trader honest, but more alert to POTENTIAL danger. After all, the markets can be tricky.

If the Intraday Update archive section serves as my personal logbook, maybe this observation of the past will be of use to me and other subscribers in the days ahead.

Subscribers that review our Index Trader Wraps each night (it's not just for index traders and should be helpful to stock option traders too) might want to take note of the OEX chart and some focus on the August 22nd action of this year.

I'm telling you.... how could a trader not have played that break higher in the OEX on August 22nd after a break above 3-day resistance? If you were a bull you "had" to play that break.

S&P 100 Index Chart - Daily Interval

You can feel it, I can feel it. The historical bullish tendency for the markets to trade strong the day before and day after Thanksgiving will have the OEX "easily" rallying to test the 200- day SMA of 494.

While the 200-day SMA wasn't my target on 8/22/02, we can perhaps imagine an overly bullish trader thinking such things would take place into October. Ugh! A trader would not have been questioned to have traded the OEX long (or other indexes either) on such a break higher, but imagine the damage that would have taken place if the bullish trader's account had been OVER LEVERAGED in a bullish trade that day and no discipline shown.

You and I can perhaps see a nice continuation pop higher in the OEX taking place on Friday. Right now,that's the SCENARIO I would be trading. However, I also trade that scenario with caution as the OEX Bullish % as of last night was at 71%. Yes, it can go to 100%, but I at least understand I'm at a higher level of risk right now for bullish trading.

Now... the BEARS are going to be thinking..... Oh goodie. After a big Thanksgiving meal on Thursday and a bullish session on Friday, the bulls are going to find themselves "burping up" a huge Thanksgiving meal next week.

OK... that's a BEAR'S scenario that may be in play as it relates to what HAPPENED after August 22nd. However, a "smart" bear that is thinking of trading short won't necessarily step in front of things right now. It may be much "easier" to make the above observation and then only trade BEARISH should history (after 8/22/02) begin to present itself.

Now every subscriber should be "unbiased" as they may have figured out the bull and bears current scenarios for the coming sessions.

I'm looking for some bullish deserts on Friday. As it is with any Thanksgiving feast, don't OVER EAT and get indigestion!

Jeff Bailey

Intraday Update Archives