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The MRI 3D Report

Stock Market Danger Ahead

Stock-Markets / Stock Markets 2016 Feb 19, 2016 - 06:11 PM GMT

By: Anthony_Cherniawski

Stock-Markets

You may ask, “Why the rally back to the zero line?”

The first answer is, “Because it can.” That’s what support and resistance lines are meant to portray. They represent pockets of buying power or selling pressure, depending on which side you are coming from.

There is another reason. Computer algorithms can be trained to “sense” these areas and use them to the owner’s advantage. In this case, it may be to the owner’s advantage to maintain the market at this level so that certain options will pay off.


However, it may also be used for devious reasons, such as a raid on those very options to produce a sell-off. Trading on today’s options is halted at noon. Should the market start to decline, the sellers of puts may have to sell (short) shares to match the liabilities of their options.

You see, options are not insurance. The options buyer simply transfers risk to the options seller. Should the put options sellers feel threatened with a burgeoning liability, they will begin to sell and as each subsequent layer of options is threatened, the selling may start a cascade.

I cannot predict that this will happen. I am simply explaining the potential cliff we may be facing should selling resume this afternoon.

Regards,

Tony

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Anthony M. Cherniawski, President and CIO http://www.thepracticalinvestor.com

As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

Anthony M. Cherniawski Archive

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