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Crowder Investment Research (Crowder's Corner)

Could January's Option Expiration Prove Pivotal?

I hope all of you had a wonderful extended weekend! The holiday shortened week began with a rather choppy, low volume trading day. Don't worry, options expiration promises to bring the market a few surprises. As more traders make it back to their respective desks tomorrow we should begin to see the tight-range seen today expand.

QQQQ remains in a very overbought position and with the poor fourth quarter report coming from Intel after the bell (profits down 39%) tomorrow could be the day of reckoning that brings the market back to normal levels.

Could a move lower be the start of a nice correction. History seems to think so. I have mentioned the following statistic several times over the past weeks. I stated “once the New Year passes I expect to see a decent sell-off. January corrections have been the norm over the last 20 years with 17 out of 20 years suffering sharp declines.

We could see continued upside momentum, forming a short-term peak, during the first few weeks of 2007, but this should taper off quickly as we reach the middle of the January. Typically, a correction has followed and usually sharp and quick, however, given the nice rally we have experienced since the Summer months the sell-off could last a bit longer. The odds are certainly leaning towards this scenario.”

I stated on Friday, the the seasonal tendency following MLK Jr. is historically negative. Couple this historical precedent with an overbought market that is near strong overhead resistance and my suspicions tell me that the bulls could have some short-term problems.

Furthermore, today's tight range-bound trading is just one more feather in the bears cap over the short-term. Needless to say, short-term bearish indicators are piling up quickly.

Oversold/Overbought levels for January 16, 2007

  • SPY - 68.9 (neutral)
  • DIA - 78.1 (neutral)
  • IWM - 57.7 (neutral)
  • QQQQ - 86.4 (very overbought)
  • OIH - 35.2 (neutral)

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our semi-monthly newsletter.  

Watch and learn firsthand how we implement our strategies.

Have a great night! 

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Published Tuesday, January 16, 2007 10:42 PM by acrowder
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The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Zecco or its employees.


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Crowder Investment Research ...
At Crowder Investment Research, LLC (www.crowderinvestments.com) we offer our thoughts on several stock and options-based strategies that might complement your long-term investment objectives. We provide you with the trading tools necessary to produce returns that attempt to outperform the major indices on an annual basis regardless of the economic environment. Our extensive research of numerous options-based strategies has shown that uncomplicated strategies, when applied effectively, consistently provide greater gains. Read the thoughts and ideas of our Chief Options Strategist, Andrew Crowder. He will provide you with educational tools, useful technical and seasonal indicators, and a wealth of investment research (updated daily) to increase your stock and options trading knowledge.

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