Fools and Dead Men

The S&P500 closed today just north of the 2000 millennial mark, making today the 10th consecutive day that the markets have wrestled with this level. Last week I mentioned that market sentiment was largely bearish in regards to this major milestone, and indeed, we did see major sell-offs at and above this level:

Major resistance: 2002.5; Pivot: 1996; Support: 1992-ish (To be determined)

The markets have accepted $SPX at 2000, but have strongly resisted 2002.5 to 2004, which I now regard as the major levels of resistance. Last Friday, we saw an 18 point rally on news of a (temporary) truce between Russia and Ukraine, however, $VIX continued to remain cautious:

In the past several days, we've seen increased put volume in the volatility index relative to the month of August but please be aware that call volume still remains high. Ten continuous trading days near the 2000 level caused a severe dampening of the 10-day historical volatility (white line), but as we all know, volatility is mean reverting, so expect markets to push above or below the millennial mark in the coming weeks.

Currently, options sales in $SPY indicate strong downside sentiment in the index with a minor chance of a rally this week to the major point of resistance at the 2002.5-2004 level:

It is said that only dead men and fools can't change their mind. As we continue into the week, be aware that market sentiment can drastically change. Do not discount a rally past the 2002.5 mark, as any positive news could easily push US indexes higher. Many bulls are still trapped at levels as high as 2010 from last week's false break-out, and the Fed's monetary policy is still conducive to further upside.

Heavy put-side volume/open interest may also warrant a short-squeeze as we approach September's expiration.

One "rule-of-thumb" straight from the CME Group warns that we see a low in US indexes the week prior to monthly expiration:

This is a Pit Bull trading rule. The S&P tends to make a low on the Thursday or Friday the week before the expiration (more so on the quartiles). The rule is to look to buy weakness on that Thursday or Friday, looking for a low to hold into Monday or even into the expiration itself. Generally, the trade is to buy on Friday and hold into Monday. (Pit Bull's Low)

According to this rule, we should expect an S&P500 low later this week, which should not come entirely as a surprise to any of you considering we have yet to pull back from this current 90-point rally in the $SPX. However, be aware that rule-of-thumbs are never 100% accurate.

Major wild-card risk events loom this week: Apple is to hold an unveiling of new product(s) tomorrow, which should see the release of the iPhone6 and perhaps something else. $AAPL is currently sitting at very high implied volatility and markets are pricing in the unveiling of something completely unexpected that will either drive the stock's price up or disappoint and move price down.

Red: IV30 Blue: HV30

Someone well acquainted with the markets should also expect the possibility that stock price may not even move at all. Hedge accordingly.

Finally, Alibaba ($BABA) is to price it's IPO next week, and this event may be one of the largest IPOs in US market history. Expect this upcoming event to add momentum to the currently lethargic markets.

Good luck tomorrow.