Morning preview 2016/12/22

This is the review for the second half of this week. Yes, we hate Wednesday expirations!

From this OI chart, I would say most of the big positions were closed, therefore we should expect quiet expiration this Friday. The only exception would be SPY 225C which is net long.

The daily chart of 225C shows the current price is just above VWAP, so we can expect profit taking above this area. The consolidation continues, I guess.

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Is the market at the top?

The market has been ripping after Hillary lost her ego.

But there is a sign of the top. I am paying attention to the ratio of S&P500($SPX) to UST30Y price ($USB). Let's take a look at the weekly chart.

$USB:$SPX Weekly

The ratio is currently 0.066. Those horizontal lines are standard deviations and the green is 1σ and the pink is 2σ, respectively. You can see how the current ratio, 0.066, is unusual level. I also examined the $USB:$SPX ratio by downloading them from StockCharts.com and found that there were only 25weeks that this ratio was less than 0.066.  Those weeks are as follows:

• 1999/11/15
• 1999/11/22
• 1999/11/29
• 1999/12/06
• 1999/12/13
• 1999/12/20
• 1999/12/27
• 2000/01/03
• 2000/01/10
• 2000/01/18
• 2000/01/31
• 2000/03/13
• 2000/03/20
• 2000/03/27
• 2000/04/03
• 2000/04/24
• 2000/05/01
• 2000/05/08
• 2000/05/15
• 2000/05/30
• 2000/06/19
• 2000/07/03
• 2000/07/10
• 2000/08/28
• 2016/12/12

You can see almost all of them happened between 1999 and 2000 when Pets.com were listed on NASDAQ.

Anyways, it's only 25weeks out of 2034 weeks that $USB:$SPX was less than current level. If this ratio reverts to the mean, and I believe so, there would be at least two scenarios.

A: Stocks are sold and bonds are bought.
B: Stocks keep getting bought and bonds are bought as well.

The scenario A is called pullback or collection, depending the deepness of the sell-off. I believe many of market participants are expecting this course.

The second scenario is called.... I don't know, but I've seen this picture before when I lived in Japan back in late 80's. I remember everything was bought....stocks, JGB, and Yen.

This is monthly chart of Nikkei back in 1980's. You will see that how the market could stay overbought by those over 70 RSIs.

I'm not saying this happens in US following years, but I would like to say "don't underestimate the power of excess liquidity".

Morning preview 2016/12/19

Good morning.

On SPY's Value Based Open Interest chart, I would like to point out two positions, 221 C (Long) and 230 P (Short).

Let's see the 221C on Daily Chart. Most of the Longs are bought on December 8th, and that buyers were still in profit last Friday, but the margin is narrowing. We could expect this Call holder would close the position by Wednesday.

On the other hand, 230P was sold to open on December 14th, the Put price has not decreased so much. If SPY price can not rise, the seller might start closing this position.

Overall SPY seems to be heavy until Wednesday.