Option Investor
Market Updates

Edging back from highs

HAVING TROUBLE PRINTING?
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A trader or investor can't read too much into a triple witching Friday, but it looks as if some peg levels for option expiration have served some intra-day resistance in the Dow Industrials (INDU) 8,480 +1.37% is just off its session highs of 8,508, which had me looking at 8,500 as an upside level of intra-day resistance.

Shares of Dow component IBM (NYSE:IBM) $79.63 pegged their daily high of $80.00 and they too settle back fractionally from their highs and will be interesting to see if traders attempt another run at $80.00 to try and shake up some put holders at that level.

Monday morning might be interested as expiration ends. This morning's gap higher in the indexes may look to get filled to the downside and shorter-term trader may be wise to market some of yesterday's closing highs as levels of potential Monday morning support. From there, traders may be alert to breaks of Monday's lows for a spill lower, or should support hold, some upside action to take place on thoughts of a Santa Clause rally into the end of the year bring some shorter-term bulls to the table.

While sector action has been bullish during today's session, the US Dollar Index (dy00y) 103.46 -0.01% reversed lower and found a bid coming back into the Gold/Silver Index (XAU.X) 74.55 +0.10%, which has reversed all of this morning's earlier losses. Action here hints there is still some type of geopolitical risk at play and perhaps much of today's gains in equities could be attributed to option expiration. Again, many of today's levels hint that expiration strikes are certainly in play.

Some red has started creeping into the sector screen with the Combined Telecom Index (IXTCX) 109.93 -1.02% leading sector losers, while the Semiconductor Index (SOX.X) 296.99 (unchanged) and CBOE Internet Index (INX.X) 92.05 -0.44% have started oscillating either side of unchanged in the latter half of the session.

Financial sectors have now moved to the top of the sector winner's list after regulators announced a landmark $1.4 billion settlement with Wall Street firms. The news appeared to bring some groans from people outside the investment community that the fines were well below the damage caused to individual investors.

The agreement separates investment banking from research at the firms and bans any allocation of IPO shares to executives or directors of public companies, a practice known as "spinning."

Dow component Citigroup, parent of Salomon Smith Barney (NYSE:C) $38.04 +2.83%, will pay $325 million.

Credit Suisse (NYSE:CSR) will pay $150 million, Goldman Sachs (NYSE:GS), J.P. Morgan Chase (NYSE:JPM), Bear Stearns (NYSE:BSC), Morgan Stanley (NYSE:MWD), Lehman Brothers (NYSE:LEH), Deutsche Bank(NYSE:DB) and UBS Paine Webber (NYSE:UBS) will each pay $50 million, according to a joint statement by regulators.

The 10 firms also agreed to pay $450 million over the next five years to provide independent research to investors and $85 million for an investor education program.

The deal ended months of negotiations between firms and regulators to end a conflict-of-interest investigation into financial research. Some of the money paid by the firms will go to a restitution fund for investors, a person said.

However, Thomas Weisel and U.S. Bancorp are not part of the pact. "We are not in the settlement as of yet," said Thomas Weisel spokeswoman Amanda Duckworth. "The regulators felt that there is greater sense to get large firms done first."

Jeff Bailey

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