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This coming Friday is the monthly options expiration for January. Often, many traders will experience a lot of volatility during the four trading sessions before expiration. These trading sessions will be filled with rumors, and countless upgrades and downgrades. Some of the rumors might be true, however, most will not. This is simply just one of the ways the large institutions can move stocks in their favor.
Why would they do this? It is simple, the large market moving institutions know that most retail options traders are simply buying call and put options on the near term expiration. The retail options trader does this because the options are cheap. You see, the further out the option is in time the more expensive it is for the trader. On the flip side, the closer the option is to the expiration date the cheaper it is. So, the institutional traders will try and figure out the imbalances in the near term expiration and move the equity in the opposite direction of the majority small retail options traders. For example, if there are a lot of call options bought in a particular stock by a large amount of retail traders, the large institutions will drive stocks in the opposite direction and make those options expire worthless or out of the money. This type of action happens every month during the third week of the month.
How do the institutions know what the small retail options trader is betting on?
Simple, the institutions watch the options chain with sophisticated computer programs and see where the small number of contracts are bought. Large institutions buy thousands of contracts at a time, meanwhile the small retail options trader buys between one and twenty contracts. Believe it or not, this is not really difficult for them to do. Once they see a large imbalance in a particular equity they will take that stock in the opposite direction. Just look at how many bullish call options there were when Apple Inc (NASDAQ:AAPL) was trading just over $700.00 a share. Soon after that high print in Apple Inc stock it rolled over by more than 200.0 points to $505.00 a share. It is safe to say that those call options expired worthless.
Rumors will notoriously occur this week. Today, there have been rumors about Apple Inc, Dell Inc (NASDAQ:DELL), and Hewlett-Packard Company (NYSE:HPQ) just to name a few. Some other leading equities that will usually be very volatile during the week of options expiration will be First Solar Inc (NASDAQ:FSLR), Green Mountain Coffee Roasters Inc (NASDAQ:GMCR), and Netflix, Inc (NASDAQ:NFLX).
Traders should also watch for upgrades at highs and downgrades at lows by major banks and brokerage firms. This is another common way that the large institutions can move stocks in the direction that they are betting. Traders should always be on guard this week as options expiration approaches.
Nick Santiago
www.InTheMoneyStocks.com
uncertainty of the Federal Reserve's monetary policy and its impact on the U.S. dollar. Since the beginning of the year, we have seen some interesting developments in the foreign exchange market as the U.S. dollar has behaved very differently against all of the major currencies. We have seen significant dollar strength against the Japanese Yen and significant dollar weakness against the euro. While it can be said that country specific factors are driving the euro higher and the yen lower, it is also the uncertainty of the Fed's monetary policy that has led to the inconsistent performance of the U.S. dollar.
By Kathy Lien, Managing Director of FX Strategy for BK Asset Management
Presented by Gareth Soloway January 13, 2013 12:02PM
This past week saw the biggest capital inflows into mutual funds in 11 years. Mutual funds are the most commonly used investment vehicles of the average investor. Unfortunately, the average hard working Americans are the ones that buy near highs and sell near lows. This means that smarter, well informed investors and traders should take note, if this is a trend. The markets may not move higher for long.
The average investor gets swept up in the hype of Wall Street. They are ruled by emotion and are always late to the party. Buying at highs and selling at lows is an emotional response, never a smart logical one. The markets are coming off a five-percent rally the previous week as the tax side of the Fiscal Cliff was solved. In addition, markets are trading just a few percent from their 52 week highs. This would not be considered a 'on sale'.
Use this example to draw the comparison: The average investor goes to Macy's to do some clothes shopping. Instead of looking for jeans on sale at 50% off, they buy the jeans that were just raised 50%. Another example would be buying milk at the grocery store. The average investors mentality is to be happy paying $9.99 for a gallon of milk yet not buy milk when it is on sale for $1.99. It makes little sense but emotion seldom does.
The massive inflows into mutual funds should continue for a few more weeks. This may keep the markets up into the end of January, through earnings season. However, the bad timing and inability to grasp buying at lows has most likely doomed the average investor again. Once the middle class money is in, the markets will head down until they run for the safety of cash. This is the classic transfer of wealth the media never speaks about.
Gareth Soloway
Chief Market Strategist
www.InThMoneyStocks.com
The average investor gets swept up in the hype of Wall Street. They are ruled by emotion and are always late to the party. Buying at highs and selling at lows is an emotional response, never a smart logical one. The markets are coming off a five-percent rally the previous week as the tax side of the Fiscal Cliff was solved. In addition, markets are trading just a few percent from their 52 week highs. This would not be considered a 'on sale'.
Use this example to draw the comparison: The average investor goes to Macy's to do some clothes shopping. Instead of looking for jeans on sale at 50% off, they buy the jeans that were just raised 50%. Another example would be buying milk at the grocery store. The average investors mentality is to be happy paying $9.99 for a gallon of milk yet not buy milk when it is on sale for $1.99. It makes little sense but emotion seldom does.
The massive inflows into mutual funds should continue for a few more weeks. This may keep the markets up into the end of January, through earnings season. However, the bad timing and inability to grasp buying at lows has most likely doomed the average investor again. Once the middle class money is in, the markets will head down until they run for the safety of cash. This is the classic transfer of wealth the media never speaks about.
Gareth Soloway
Chief Market Strategist
www.InThMoneyStocks.com
As we all know, the public has really not participated in the stock market since the 2008 credit and banking crisis. Since that point in time, the public has developed even more of a sour taste for Wall Street. Events such as the flash clash, LIBOR manipulation by the banks, high frequency trading manipulation, the MF Global bankruptcy, and of course all of the home mortgage scandals have caused protests, and almost a hatred for Wall Street by many in the public.
Mutual fund outflows have been occurring by the public investor for the past four years. Most hard working people now believe that the stock market is rigged by the large banks. Writers such as Matt Taibbi and others have demonized many of these large financial institutions for their antics and abuses that occur in the stock market all of the time. There are now many websites, bloggers, and publications that follow and track rules that are being broken by the large Wall Street firms all the time. Usually, these big firms just get a slap on wrist and continue with business as usual.
Mutual fund outflows have been occurring by the public investor for the past four years. Most hard working people now believe that the stock market is rigged by the large banks. Writers such as Matt Taibbi and others have demonized many of these large financial institutions for their antics and abuses that occur in the stock market all of the time. There are now many websites, bloggers, and publications that follow and track rules that are being broken by the large Wall Street firms all the time. Usually, these big firms just get a slap on wrist and continue with business as usual.
The bank bailouts since 2007 have caused outrage in the streets. The Occupy Wall Street movement started to take on a life of its own last year. Prior to the Occupy Wall Street movement was the Tea Party which stood up as a fighter of government bailouts. Texas congressman Ron Paul has been outspoken on the Federal Reserve Bank and other central banks around the world. Many people in the public are now wondering how printing money out of thin air can continue to prop up asset prices and help the economy. The Federal Reserve claims that its monetary policy will help create jobs and boost the economy. Others believe that the central bank is simply a way to help prop up the banks, which still have a lot of problems.
Here is another problem with these large banks which give Wall Street a black eye. It is the upgrading of stocks and indexes at extreme highs. Here are some examples, Goldman Sachs Group Inc (NYSE:GS) upgrades light sweet crude to $200.00 a barrel when it was trading around the $145.00 level in July 2008. A few days later oil tops out at $147.00 a barrel and plunges down to $33.00 a barrel in January 2009. Perhaps this upgrade was just an honest mistake. In August 2011, J.P. Morgan Chase & Co (NYSE:JPM) upgraded the price of gold to $2500.00 an ounce. Gold tops out in September 2011 at $1923.00 an ounce and falls as low as $1523.00 an ounce in December 2011. Perhaps this upgrade at a high was simply just another error by the so-called smartest people on the street. However, I sincerely doubt that. In November 2007, almost every major Wall Street firm was upgrading Google Inc (NASDAQ:GOOG) when the stock was trading over $700.00 a share. The projected price targets were over $1000.00 or more for Google stock. That stock dropped more than $300.00 points in just four months from that peak and even further throughout 2008. It seems that these Wall Street firms are really good at picking tops in leading stocks and commodities - sarcasm. Another recent example just occurred in Apple Inc (NASDAQ:AAPL) when the stock was trading around the $700.00 level in late September 2012. As many of you already know, the stock declined by $200.00 points in less that two months from that high. If you were following along with our analysis over the past five years, you would have been on the right side of the calls mentioned above. The most notable of which, the real estate and market bubble burst of 2007; we are well documented for alerting our viewers of this event well before it happened.
So the moral of the story is, learn how to use the charts and don't listen to anyone. The charts are the only reliable way to have a chance when it comes to trading these markets. Obviously, all of these large institutions need to have someone to sell to when it comes to these upgrades at extreme highs, otherwise it would make no sense to buy when everyone is already in the market. Who is left to push the stock or commodity higher? Why don't they ever seem to upgrade these equities at the lows? That is the million dollar question, we can only guess it is because it makes the big Wall Street firms millions and steals money from the uninformed individual investor.
Nick Santiago
www.InTheMoneyStocks.com
In the last fifteen years, the United States has seen bubbles inflate and burst more often than anytime in history. There has always been a boom and bust cycle, yet in the last decade and a half this has happened once ever few years. The average investor should be extremely worried about this because these cycles destroy more of their wealth than anything else in the world. The average investor will buy into a bubble near the top, then ride it down until they sell at the lows. During the financial crisis, many investors lost their retirement savings. The same thing happened to some extent during the tech boom in the late 1990's. So why are we seeing more dramatic bubbles in the last 15 years?
The simple answer is government intervention, primarily the Federal Reserve. While the Federal Reserve is not part of the government, they act as their hand.
Let's look at an example of a cycle. Take the seasons. There are four seasons, spring, summer, fall and winter. Now what if you took spring and manually kept it all year round? Things would be beautiful, life would flourish...for a while. Yet nutrients would be eliminated from the soil, depleted as new life thrived early on. In no time at all, without new nutrients being put into the soil through death in fall and winter, a catastrophic collapse would occur. Soon life would wither and die regardless of spring. The ecosystem would collapse.
Another example would be changing the cycle of life in the human race. To some extend this is already being done through medicine. If you take away the prospect of death in the human race, overcrowding would ensue. Within years, mass starvation would occur and the pollution to the earth would create even more hardships. This can already be seen with hundreds of millions hungry around the world and global warming taking hold.
The bottom line is simple. Cycles are part of life, whether in nature or in the markets. When you mess with them you will screw things up even more. The Federal Reserve tries to limit the severity of recessions by intervening with monetary policy. While in the short run it may and often does help, it never outweighs the long-term consequences.
The best example can be seen right after the technology bubble collapsed. The Federal Reserve dropped interest rates dramatically and encouraged home buying for all. While it may have kept that recession slightly less severe, that action created the real estate and financial crisis.
To deal with the financial crisis and the Great Recession, the Federal Reserve has now printed trillions of Dollars. The way they do this is by pumping money into treasuries and artificially keeping interest rates at 0%. This is known as "Quantitative Easing". In addition, the government has taken on trillions in debt to help alleviate the harshness of the recession.
These actions, even more drastic in nature will have unbelievable consequences down the line. The next bubble is in the bond market, less than 5 years away from collapse. While many average investors do not think the bond market has much heading on their lives, it does. This is tied to inflation and interest rates. In other words, the price you pay for food, energy and everything else you buy may be double in just five years.
Please note that each bubble collapsing, is harsher than the last. This is mainly because each time, the Federal Reserve and government take on more drastic measures to get us out of the mess. The more drastic the measure, the bigger the next bubble created by these measures will be.
Recessions stink, no one wants them but they are a way of life. If left to their own doings, recessions would generally be minor. The more you screw with the natural course of things, the more you screw yourself, the American people and the world.. I plead with the Federal Reserve and government to start hearing common sense and realize screwing future generations will only send them to hell and make the history books curse their names.
Related: SPDR S&P 500 ETF Trust (NYSEARCA:SPY), SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA), PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ).
Gareth Soloway
Chief Market Stategist
www.InTheMoneyStocks.com
