By Gareth Soloway on June 17th, 2010 12:40pm Eastern Time
Ugly is the only way to describe the economic news out today. However, the markets are refusing to fall more than slightly due to options expiration and light volume. For those of you that are somewhat new to the trading world and the manipulation of options expiration, please let me explain. Institutions, which control 90% of the volume in the market sell the options to the public. They make a premium on the option when they sell it. To maximize profit, it is best if the given security expires worthless (out of the money). Then the whole premium is made as a profit. Over the last six weeks the markets have sold sharply. The retail investor got caught up in the moment of panic and bought puts. As many more puts were bought than calls, institutions have a reason to push the market up going into options expiration to have those puts expire worthless, thus maximizing profit. This explains why the markets often move the opposite way into an options expiration and also why negative news is not driving the markets lower.
Today there were three very negative economic reports. The markets are just barely negative on them. First, at 8:30am ET, Jobless Claims were reported at 472,000. The market expected a much smaller number. Jobless Claims above 450,000 continue to tell us there is no job growth out there and the unemployment rate will stay high if not go higher.
At 10:00am ET, Leading Indicators and Philly Fed were reported. Leading Indicators came in at .4%, weaker than the .5% the market expected. The far more shocking number was the Philly Fed. It came in at 8 after last months reading of 21.4. The market had expected a number of 20. This is a shocking miss and one that normally would drop the markets sharply. However, on the light volume of options expiration week, the markets are just slightly lower. The SPDR S&P 500 ETF (NYSE:SPY) is down $.46 to $111.50. That is a drop of .40%
Credit card companies like Visa Inc. (NYSE:V) and MasterCard Incorporated (NYSE:MA) are one of the few positive points of strong action today. They are surging after positive comments were made.
The commodity stocks are the weak are of this market today, most likely on the back of the weak economic news. A weaker U.S. economy means less demand for commodities. The United States Oil Fund LP (ETF) (NYSE:USO) is down 1.15%.
Gold on the other hand is surging to the 52 week highs. Gold will most likely continue higher as the printing of money shows no signs of stopping in a weak economy. It seems as if pullbacks can be bought. To get more insightful guidance, education and of course the profitable swing trade calls I am famous for, join the Research Center.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
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