Friday, May 05, 2006

Will the Dow Make a New High?

Observation 1: Of course it will. Observation 2: Who cares?

Having satisfied my cynical side, I think the Dow making a new high will be an excellent newspiece and if anyone should care it would be us, options traders.

From one point of view, the index is meanigless to my style. From another, a new high will mean more realized volatility (and maybe even lower implied) and the break higher will inevitably be followed by a tradable breakdown and then yet another rally higher. All of these moves will have implications on individual issues and create a lot of exploitable price extremes.

Contrarians will have their field day.

This market is positively giddy. TOL said Q2 will look bad. Fortune said construction landscape looks bad and the builders are up. Gold and Oil are screaming and the S&P is up.

Giddy about what? See Observation 2.

Buy those dips and leverage into breaks. There is money to be made.
A whole pile of it.

Cheers,
/Dmitry

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