An interesting week indeed.  As discussed in my last blog the FED’s decision sparked a big jump for Wednesday.  So far my thoughts on the results of this decision have been confirmed.  But what of the rally over all?  I now think a large part of it was due the the March expiry looming and all those “in the money” put options out there.  For those who don’t know much about this – Friday morning at the open was when the March futures closed and options expired. The big boys, that is the market makers and the large broking houses make lots more money when this happens at the right level for them and cumulatively they have enough money to push the market in the right direction for that to happen.

I once used to do an analysis a week out from expiry as to the number of call and put options at each strike level and then guess where the market would finish on expiry.  I would not mind betting the optimum expiry for the big boys was around the 800 point mark.  Monday and Tuesday saw double the usual volume of futures contracts traded. Wednesday was up by 75%,  Thursday was only just above average, and after expiry on Friday volume dropped to half the average.  Hmmm…

Also of note was that on Wednesday and Thursday the intraday high was 800.3 and 800.5 respectively.  So we can say at this point that the 800 point resistance has held, (so far).  There are many who expect this bear market rally to carry on until the end of April, and this is just a pause in the upward movement.  If  in the next week the 800 level is breached then the next major resistance is at 850.

I think the move we have seen in the last week was the big boys protecting their sold puts.  The economic news was not enough to justify such a volume of futures contracts traded.  Then we read today that more banks and credit unions have gone bust, bringing the total this year to 21!

The Bulls are all fired up, saying now the FED is on board all is well.  But what has changed overall?  Initial unemployed numbers are still coming in at over 600,000 per week.  You can not have that many people losing their jobs per week without consequences like rising delinquencies in credit card balances, more foreclosures,  less spending on non essentials, especially cars.  Its not all over yet.