Securities Research Services

Wednesday, June 20, 2007

Sellers Miss an Opportunity

The market has been correcting in time instead of price. Prior to options expiration, we were not sure we trusted this action as the market could have potentially been held artificially higher in order to put a hurt to the put buyers. Over the past few days, however, we have been seeing expired put contracts being rolled over into next month as sentiment levels refuse to budge from an overly bearish posture.

Overly bearish sentiment creates a paradox in that prices can be held afloat by protective measures the crowd takes to hedge their positions. In other words, all those puts that buyers continue to actively accumulate have the effect of keeping a floor under the market. This allows the market to correct in time (sideways) instead of price (down).

This is a bullish development if it continues.

Even so, the broader market offers few advantages here. Dip buyers who are looking for stocks to move straight up are very likely to be disappointed. Flipping has been the name of the game lately and it looks to remain so for at least another week if we have measured the trend lines correctly.

This does not mean that opportunities don't exist however. The lack of selling pressure has given some more speculative, under-the-radar-screen, small cap stocks a boost. In other words, when the cat is away, the mice will play. So right now, when selling and buying remain muted in the broader market, those stocks not so closely watched are seeing some play.

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