Option Investor
Index Wrap

More of the same, a change, a big change

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Traders and investors got a slight taste of what the financial markets might be thinking should the United States of America elect a new president.

While stocks held gains through the bulk of today's session, a late round of selling left the major indices mixed as early exit polls had Senator John F. Kerry holding slight edge over incumbent George W. Bush in key battleground states of Ohio and Florida.

S&P 500 Index (SPX.X) Chart - 30-minute intervals

A market watcher would have been predicting a Bush win earlier this morning (certainty, MARKET knows policies). I'll admit that I was a bit surprised the markets showed the strength that they did on this Election Day, as market participants usually avoid making too many buy/sell decisions as the world's largest economy votes for who will hold the office of president.

You watch. Tonight's election is probably going to be a close as the S&P 500's fractional 1/2-point gain.

One political watcher said the election was so close that we could actually see a tie in the electorate, whereby George W. Bush would most likely retain his office, but the Democrat's Vice President candidate, John Edwards, could replace Dick Cheney as Vice President. Can you imagine the gridlock of that ticket?

Did you know: In the event no one obtains an absolute majority of electoral votes for president, the U.S. House of Representatives (as the chamber closest to the people) selects the president from among the top three contenders with each State casting only one vote and an absolute majority of the States being required to elect. Similarly, if no one obtains an absolute majority for vice president, then the U.S. Senate makes the selection from among the top two contenders for that office.

Presently, the Electoral College has 538 electors. There are 535 for the total number of senators and representatives plus three for Washington, D.C. Today, a candidate must receive 270 electoral votes to win.

While some economists believe the president doesn't have that much influence on an economy, at least near-term, it all comes down to some type of "certainty."

Market Snapshot / Internals - 11/02/04 Close

Maybe it was a thought I had in the 01:00 PM Intra-day update that when all the votes are counted by tomorrow, and the outcome of this year's election is known, that just 51% of voters are actually going to be happy tomorrow that had the major indices retreating to the close.

Market Volatility Index (VIX.X) - 30-minute Intervals

I placed my bar chart cursor on the 30-minute interval beginning at 02:45 PM EDT and we can see the "pop" in the VIX.X. At tonight's close I look at the top 5 most active options (Volume : Open Interest) and average price of today's O/H/L/C.

My analysis is that there was a buyer earlier in the day of the Nov 1,175 calls, but it looks like a volume spike from the morning (4,910) was matched from 01:00-01:30 (5,017) for a gain of almost 100%. At this time, the SPX was trading 1,140.

Now, the Nov 1,150 C, is a little more interesting and may have been a directional play lower, IF viewed from a WINNING trade perspective at tonight's close. From 01:00-01:30 2,445 contracts creates an uneven volume spike and traded at roughly $9.00. I don't really see a short-term following spike of volume and my analysis would be a "naked call seller" saying the SPX wasn't going to trade 1,150 + $9.00 = 1,159 before November expiration.

Now, note the prior two options traded some activity between 01:00-01:30 and no real time tie to today's VIX.X action.

The Nov. 1,100 Puts becomes a little more interesting. Three "spikes" of volume intra-day, all three just over 1,200 contracts. That's some cash when average price of these three trades does look to be 1,100. The last volume spike come from 02:00-02:30. This gets "closer" to the 02:45 VIX.X move. My analysis is that this was a seller. If I'm wrong and this was a directional play then I'd place some focus at Support #2. The reason I think this was a put seller is that the first volume spike came early in the session, at/near the contract's high price. The last volume spike came late in the day 02:00-02:30 at/near contract low price. My analysis of this being a put seller could be incorrect, if this were an institution buying these puts as a hedge, to hedge against bullish positions accumulated during the day, perhaps on thought of a "Bush victory."

The Nov 1,120 puts don't really have much of a time match with 02:45 PM EDT. At 03:15 PM EDT there was a pretty decent spike of just more than 1,000 contracts at $9.50. If I take $10 either side of 1,120 I can come up with a range of 1,110-1,130. The 1,130 is today's close, while 1,110 has the SPX down at that little "sliver of support" found from the WEEKLY/MONTHLY pivot retracement. When I update the Pivot Matrix, we might look for 1,110 there too.

The Nov 1,025 puts look to be a large speculator closing out prior to 12:00 PM EDT. If this analysis is correct, the Open Interest should fall on this contract tomorrow.

The most "peculiar" trade that I see in today's option chain wasn't the most active, but the Nov. 1,130 puts (SPT-WF) did trade 6,925, which looks heavy considering open interest is just 7,414. I look for things that seem peculiar. The biggest volume spike comes at 10:55 (1,614 contracts) at $18.68. This isn't a "piker" type of trade. That's some cash. Then some smaller volume spikes of 600 and 770 contracts just after 03:00 at about $13.00. Today's average price range was $13.62 and if I take $14.00 either side of the 1,130 strike I come up with a range of 1,116 to 1,154. OK... 1,116 is pretty darned close to the WEEKLY Pivot. That's got to be a key level tomorrow.

Pivot Analysis Matrix -

In PINK I've marked the SPX Daily Pivot. I see that as "overlapping" early resistance with the MONTHLY 38.2% retracement at 1,132.84. The reason I'd watch that is if Kerry were to win tonight's election, bulls might want to see if that level gets cleared first, if futures are pointing to a higher open.

I'll note the benchmark 10-year yield ($TNX.X) gravitated right back to its MONTHLY Pivot of 40.77 by the close. Treasuries really traded in a tight range and didn't seem to get as "carried away" with things as stocks did today.

I still see the WEEKLY Pivot to MONTHLY Pivots as being the important near-term support. I would have to think a break below those levels is going to be a restful pause of recent gains.

I've marked tomorrow's DAILY S2 with "Kerry" on thought that we could see trade to at least that level on a Kerry victory. DAILY R2 is marked with "Bush" where stock market participants would breath a sigh of relief.

Jeff Bailey

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