jeff cooper had an interesting take on the market...written friday morning
On Alert for Extreme Volatility
By Jeff Cooper
Special to TheStreet.com
07/19/2002 07:08 AM EDT
Despite Monday's huge reversal, this week the bulls have snatched defeat from the jaws of the bear. The chance for a squeeze play into options expiration on Friday was squandered. Or so it seems.
Although we have a new low close on the S&P 500, Monday's low has not yet been undercut. Importantly, Monday's low was within 1% of our longstanding 865 projection. Moreover, many listed stocks I follow have gone three days without a new low, and of course the Nasdaq (NDX) has gone 12 days without a new low.
The market plays out in "3's." Accordingly, Friday sets up as a big day. After Monday's large tail, the S&P shows a "Cooper 1-2-3" test of a low.
What may be dragging the S&P down, as many issues seek equilibrium, is the fact that Royal Dutch (RD:NYSE - news - commentary - research - analysis) will be deleted from the S&P 500 on Friday. Hence, the arbs are pounding the S&P futures out of fear Royal Dutch may drop substantially upon the deletion.
Also, Friday's expiration may be acting as a magnet pulling the market past our mid-July turning point. Either way, Friday/Monday sets up for a big, big move -- up or down. The 865 level might be magnetizing the S&P into expiration. It may have to be kissed precisely. On the other hand, if 865 breaks convincingly, the ultimate equilibrium of 750-775 on the S&P, or one-half the all-time high, might play out into a Friday/Monday crash.
Conclusion: The Royal Dutch deletion may be compressing the S&P artificially. If the S&P futures get back above 900, the possibility of a very big bowling-for-strikes upside play could evolve. If 920 is broken on the upside, we could get some real fireworks. Heads up.
Friday should be extremely volatile and a very large range day in one direction or the other. Either way things play out, by Monday I believe a summer rally will begin to unfold, if it is ever going to. |
