Note that the 20-day weekly moving averages on all three have been a place of support all through 2013 and for the most part 2014 as well (on a weekly closing basis). If we get there, the reaction or lack thereof will be telling. It would also be wise to keep an eye on U.S. Treasuries (such as the iShares Barclays 20+ Yr Treasury Bond (TLT)). If they continue to creep higher it is suggestive of a risk-off environment and hedging.
It is important to keep in mind that this could all be a bear trap similar to the ones we have experienced all through 2013. Trying to short can be quite challenging due to the frequency of violent bounces. For those looking to short next week, it may be better to wait for stocks to render strong bounces that don't hold or get stuck at resistance levels.
Why options expirations could play a role in further downside
There is a large amount of outstanding SPY puts at the 180 put strike. Sometimes, if the trend is leaning toward the direction of a large open interest strike, that strike becomes a magnet of sorts. This is a result of option sellers rebalancing their stock or ETF position to remain delta neutral.
In this case, if we see further selling next week, as all the open interest put strikes get closer to or in the money, sellers must sell more stock short leading to a domino effect.
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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.