A Reversal Towards the End of the Week

Daily Continuous

Last week provided a great opportunity to learn about gaps as I discussed in the Weekly Section on Wednesday… It is important to realize that the gap closes, but it is critical that the market confirm that by a daily close beyond and even more important, from an enforcement standpoint, to have a weekly close beyond the gap. Neither occurred last week and we witnessed the market reject the gap closing as the week went on. I want to thank the folks who sent me emails regarding the accuracy of the Weekly update and hope it was a profitable event.

Added to the discussion about the market going into expiration and how the market looks like from a technical standpoint in the Weekly section and will not restate what is already written. Prices have three days left of the November contract and there is still 21,000 contracts open (historically a little high) so there may be some additional volatility. My interpretation of the market remains the same as stated in the Weekly last week– expect the Dec contract to weaken toward the gap area ($3.066) in the coming week. Where Nov goes is anyone’s guess- it may chase Dec but I have to believe there are some option positions around $3.00 that may or may not have been closed last week, ensuring the potential volatility.

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