It Ain't Over Till the Fat Lady Sings

The S&P500 finally rejected the 2000 level after spending 11 days trying to hold the line. After $AAPL failed to please the Street, we saw a 10 point free fall in the index with 1986 acting as the first level of support:

Where are we headed from here? Let's take a look at some option skews:

For the remainder of the week, a majority of traders, based on option sales, are expecting further downside action to levels as far as 1970. Another group is betting on a rally back to the highly significant 1996 pivot.

Yesterday I talked about a trading rule straight from the CME Group (formerly Chicago Merc, CBOT):

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)

This is a rule-of-thumb and remember these should not be construed as 100% predictive of the future. However, do consider this factor for the remainder of your trades for this week.

The $VIX increased nearly a full point today and has for the first time since mid-August moved above its 30-day moving average:

 The VIX implies a 3.9% movement in the S&P500 in the next 30 days. This translates to about 75 points, which if realized, would bring back the index to about 1910, or right where we were before this incredible 100 point rally.

Remember that markets do not go straight up or straight down but it would be wise to hedge against volatile downward movements from a much needed consolidation in this current rally. Big players have already started to take profits as the Fed trims its balance sheets in October.

The largest company (by market capitalization) $AAPL has been seeing large profit taking in the past few days:

Heavy sell-side volume has dominated Apple's price action since the 3rd of September. Today's event failed to impress the markets as all announced products were practically already known months ahead of time and priced into the stock. Many "Apple-stock-price-to-the-moon" enthusiasts are now trapped at levels high above today's $98 close (some as high as $103.50).

As buyers of this current rally are exhausted, more and more bulls are being trapped at increasingly difficult levels. Let's remember that we had many buyers of $SPX at levels between 2000 and 2010, which is now pretty distant from today's 1986 close.

But it ain't over 'till the fat lady sings. This fat lady being Alibaba ($BABA), which will be pricing its IPO next week. Alibaba is currently being priced to be the largest IPO in US market history, which from one perspective can bring new buyers into US indexes. Another perspective could be that this offering might find more bulls to be trapped at these index all-time high's.

Please be careful this week and good luck tomorrow.