ARCHIVED COMMENTARY
Will Monday
Bring Disaster?
For edition of April 18, 2005
Stocks tumbled to their worst weekly finish in more than two years Friday, prompting some old-timers to wonder whether it might be the beginning of a 1987-style meltdown. For reasons that I will explain shortly, I doubt it. But we shouldn’t get our hopes up that, come Monday morning, the NYSE will announce that we were all punk’d. No matter what happens, though, Rick’s Picks subscribers awill be well cushioned against the blow, since we hold sixty June 34 QQQ puts that traded Friday for nearly three times what we’d paid for them.
I had recommended selling a third of them if they reached a juicy enough price, which they did. Subsequently, with the market threatening to come unhinged around mid-day, I put out a bulletin reiterating this advice, lest some of you have second thoughts about squandering precious ammo ahead of a catastrophe. That thought crossed my mind too – that we might be giving away puts that could double or even triple in value yet again when stocks get rolling on Monday.
(Click on chart to enlarge)
What convinced me that it was time to take at least some profits was the nearness of two major hidden-pivot supports beneath the QQQs. I identified them precisely in a bulletin posted intraday: “There is very solid support in the range 34.65-34.72 -- so solid, in fact, that it’s possible the QQQs -- and presumably other broad averages -- might go no lower on Monday. But here is an important caveat: If the QQQs do head south, breaching the bracketed support range, it would be a warning that the stock market might be about to crash.”
A Nerve-Wracking Low
We’ll know soon, since the Cubes made the most nerve-wracking low imaginable on Friday -- exactly midway between 34.65 and 34.72. Had I not discerned these long-term supports, I’d probably be as fearful as everyone else that shares are going to get clobbered Monday. Given the importance of the two hidden pivots, though, there’s an approximately 33% chance that stocks will open flat-to-slightly higher -- an outcome that will likely confound Wall Street even as it brings us all unexpected relief. Of course, if you’re inclined to see the glass as a half-full, then it is the 67 percent likelihood stocks are headed over the falls that's going to be paramount in your mind. Likely though that may be, there is still room for prayer nonetheless.
