A very volatile day in the market. Option expiration is on Friday and volatility is taken to extremes on days like this. Today was a great trading day. Based on yesterday and the overnight indices across Asia and Europe, weakness was to be expected during the early part of the session. The market did pierce its March 5th lows that I had mentioned however, this temporary break of support brought in the buyers and a strong rally unfolded. This rally in all likelyhood is a result of market participants trying to pin the indices to certain levels ahead of expiration. In addition, we were at oversold levels from a short term perspective. I do believe we will head lower in the weeks ahead. But I do think we may see a rally all the way to Fridays expiration. Key economic data such as PPI and CPI are being released in the days ahead which will result in increased volatility.
The homebuilders were the big winners today. Looks like an oversold bounce and short covering to me.
The story being told to support the rally is that the subprime mess is not as bad, as originally feared. I do not think this is the case. I do not believe a bottom is in for housing or the mortgage sector. What we had today, was an oversold bounce along with the volatility of option expiration week and an effort to 'pin' the price of indices and stocks to certain levels.
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