Thursday, May 18, 2006
Yesterday was a rare day when the crowds ended up being right about the market's direction. Support levels on the Dow and S&P cracked while the Nasdaq trailed off even lower. Put contracts purchased en masse over the last few days are deeply in the money. Keep in mind that Friday options expire and with stocks and indices more than oversold now it shouldn't be too difficult for options sellers to incite a short covering rally to at least recoup some of their losses. Put buyers would do well to take profits while they have them. Even so, this market remains a falling knife as of yesterdays' close. We can speculate that a turn is overdue but until that knife stops falling it is dangerous to get under it. A few potential bounce back plays are developing already and stocks that fell back on light volume should rally once the pressure eases. Other stocks that have fallen on heavy volume and that have broken their trends should be good shorts once they retrace some. In other words, opportunities abound in this market but we have to time them right. We are almost there.