Securities Research Services

Monday, June 18, 2007

S&P Holds Back Bulls

Last week the market whipsawed bears and put a squeeze to their positions as options expiration games, a focus on inflation numbers, and overly bearish sentiment gave bulls a boost. On Friday the QQQQ broke out to a new high giving bulls another boost.

It's pretty hard to trust the market here, however. While calling a top is a very difficult endeavor, it's not so difficult to see that buying in at these levels is very risky indeed. While the tech heavy QQQQ broke out Friday, it wasn't able to do much more than close unchanged on the day. Moreover, volume was at its weakest levels in three days and certainly not indicative of the type of volume you would want to see as an index breaks out to a fresh high.

Adding insult to injury, the SPY not only did not make a new high, but turned around and reversed hard mid day carving out what is now very likely a lower high, or at least something very close to one.

Traditionally options expiration strength tends to unravel on the following Monday. So, we will be looking for the market to put on a bearish trend either today or tomorrow.

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