Weekly Thoughts

It doesn’t get much better than option expiration week. Throw in a nice little pullback and increased volatility and you’ve got a market again. Lots of economic data coming out this week starting Monday with retail sales. Tuesday has the Producer Price Index (PPI) and Wednesday brings the Consumer Price Index (CPI) both of which are followed up on Thursday with the Philly Fed Manufacturing Index and weekly claims. Enough catalysts to propel the market in either direction so I’ll be watching key levels for clues about the reception of all this data.

The POMO is in full-effect this week but interestingly enough Friday’s Fed action was trumped by news out of Ireland. Hard to imagine Ben Bernanke dropping the “F” bomb but Friday’s failed attempt to save us all from ourselves provided a great opportunity to let one fly. This whole week has the Fed in the markets and if Friday is any indication of the impact their efforts will have on the equities market we could see some amazing fireworks.

Below is a volume profile chart for the $SPY which shows the just filled gap of QE2 announcement. The biggest level on that chart is the fib level from the 10/5/07 to 3/10/09 period. This past week that level proved to be the tipping point of the current rally and is wedged between R1 and R2 of the weekly volatility price targets. Lots of economic data and option expiration leaves me cautious here but I also look to sell the December cycle this week.