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Friday, May 9th

This is a Portion of the FREE Weekly Commentary is a part of a comprehensive weekly posting for subscribers of The Option Strategist newsletter. Click here to receive the full commentary free via email. Click here for Testimonials.

Stock Market 

The bulls were having things pretty much their own way, after last Thursday's big breakout to the upside, decisively over $SPX 1400. Moreover, strong gains were registered this past Tuesday, as the market reversed from down to up on a very strong day ($SPX was up 21, from low to high). But then the wheels came loose. First, a daylong decline on Wednesday took the averages down sharply. Then, today, there was a weak close. There's no getting around the fact that this bearishness of the past two days -- abetted by a sharply rising bond market (indicative of asset allocators moving out of stocks and into bonds) -- is putting extreme pressure on the bullish case.

We have been saying that it would be negative if $SPX closed below 1390, for that would violate the 1390-1400 support area. It closed at 1392 on Wednesday. However, perhaps what's more important is the rising trend line of $SPX and not the well-publicized 1400 support area (see $SPX chart, figure 1). The market has ways of confusing the majority, especially when the majority is all looking at the same thing (i.e., $SPX support at 1400). So, we wouldn't say that the $SPX chart has lost its bullishness unless $SPX were to violate that trend and close below its 20-day moving average -- both of which are near 1380 at the present time.


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Larry McMillan has authored two best selling books on Options, including Options As A Strategic Investment, recognized as essential resources for any serious option trader's library.

As president of McMillan Analysis Corporation, he authors the "Daily Volume Alerts", and edits and publishes "The Option Strategist", a derivative products newsletter covering equity, index, and futures options.

Recognized as an options trading industry expert, serious investors have relied on his insights, observations and recommendations for years.

 


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