The bulls got off to a decent start, although gains were limited, before the bears quickly woke up and decided to join today’s session. There has been a bevy of positive news this morning which put the bulls in a buying mood but things turned sour after a key economic report 30 minutes after the open halted the momentum.
The Labor Department reported the Consumer Price Index (PPI) for August rose by 0.3% from July while the Reuters/University of Michigan’s Consumer sentiment index came in at 66.6 for September, below estimates of 70. The preliminary reading was down from the August reading of 68.9.
Today is “Triple Witching” and it is has been a positive day for the bulls over the last couple of years. Triple Witching is when the contracts for stock index futures, stock index options, and stock options all expire on the same date. Triple witching happens four times a year and occurs on the third Friday of March, June, September and December.
We continue to talk about the key resistance levels for the Dow, Nasdaq and S&P 500 and despite the title, triple witching has actually proved to be a bullish time for the market. In fact, 10 of the past 12 triple-witching expiration weeks have been positive which may be why we have seen the bulls push resistance this week.
However, going by history, the following week after SEPTEMBER Triple Witching has been brutal. We have been pouring over the data all week and our homework is telling us that today’s close will be crucial.
The bulls have done a tremendous job of taking the market higher since the start of the month but if they lose today’s battle and cannot close above key resistance levels then next week could get real ugly. The Dow has traded lower in 6 of the last 7 years following weeks like this with heavy losses over the past decade.
Of course, history doesn’t always repeat itself but it is helpful to know what might happen based on facts and where we are in the market. The key levels we are watching are Dow 10,600; S&P 500 1,125; and Nasdaq 2,300.
If history doesn’t play out and the bulls break and hold resistance then to the upside we could see 10,800; 1,150; and 2,350. If the market closes below resistance then the bears will have the edge going into next week. At least that is how we see it.
In Biotech news, it looks like the diet drug race could continue for a couple of more years as Arena Pharmaceuticals (ARNA, $2.05, up $1.71) officially got rejected by the FDA. Shares were halted all day on Thursday as the FDA advisory panel reviewed the company’s diet pill, Lorcaserin, and reopened in after-hours trading last night. Needless to say, the stock was down 40% after the close and those losses held as shares are down 45%, officially, today.
Vivus (VVUS, $6.07, down $0.19) and Orexigen (OREX, $6.14, down $0.63) are also trading lower on the news as both companies have development weight-loss drugs that will likely suffer the same fate.
These drugs need a little more work but keep these stocks on your Watch List. Dendreon (DNDN, $41.88, up $0.28) is a classic example of a company that had/ has a blockbuster drug but had trouble bringing it to market before getting it right. Dendreon was a $4 stock that zoomed to $20, fell back below $10 and languished, before getting all of its data points and clinical trials in good standing with the FDA.
These diet drugs work and are effective in most cases so they will be tweaked. It’s probably too early to nibble on these names right now but there will be a trade in these companies down the road as the market for this drug is huge – pun intended. We aren’t sure if they are option worthy trades but keep these stocks on your Watch List as they will be back in play in the future.
We are printing a little early today because we are closing another half of our strangle option trade which returned 32% and we want to do so now. As we head to press, the Dow is higher by 5 points to 10,600 while the S&P 500 is up by 2 points to 1,125. The Nasdaq is showing a gain of 10 points to 2,313.
We will be back Sunday evening with the Weekly Wrap and we will probably be opening a few trades on Monday as September options expire today. Until then, keep an eye on today’s closing bell! Subscribers, check the Members Area for the important trade update.