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This week brings us options expiration, and with it the lowest volatility we've had in about a year. We could argue complacency, and that would certainly make sense. We could argue bear market rally, and historically speaking that could be correct.

However, given the power of this move, we've talked about for weeks now, there seems to be no let-up. Expiration week is a time mostly for closing positions, but we play it in a way to find the short-term momentum trends up or down and ride them out. This week may be particularly exciting from the standpoint of several big earnnings reports and economic reports.

Option Open Interest Seems to Be Telling Us Something

One thing that grabs me during expiration is open interest. While far from perfect indicator, the open interest is a characteristic of supply and demand and is usually a good clue into where prices are heading in the short term.

Basically, what we look for is price gravitating toward the largest open interest but not drifting over to "in the money" status. This tends to cause the greatest amount of pain between buyers and sellers. The best indicator I've found is looking at the skew of open interest in the SPY and QQQQ. There is a heavy open interest concentrated at specific strikes (QQQQ 38 put and SPY 100 call/put). I would say based on this fact the bias is probably for a slightly lower expiration week overall.

Shhh... Listen ... Hear that Sound? Bears Are Grumbling

Let's be honest, the bears have been drilled since early March, a 50% move mostly uninterrupted. That's five months of pain and nary a chance to make a statement. The longer we go without some major downside the less likely it'll happen as they expect it to.

However, there is some bearish chatter out there. Do we pay much mind to it? Not really, we'll pay attention to the charts and technicals. While it's fun to pound you chest saying "I called it," that's really of no consequence for a trader. Sentiment, momentum, volume and trends are what we key in on. When the market is ready to turn, we'll find it without listening to the naysayers.

The Greenback Is the Key

I can't recall the last time our politicians actually threw their support behind a strong dollar. The weakness in our currency has been a positive for commodities; however, the threat of inflation is certainly real. Large holders of the dollar continue to sell the currency and buy hard assets (China, India for example) as long as the recovery seems weak.

Strength in Europe has lifted the euro and pound, with each currency up 10% or more since April. A strong currency is good for stability of the economy, but reaching away from the edge of disaster is most important. The most recent jobs data may point to growth in the economy, but some are not convinced just yet. If the dollar emerges stronger, we'll know that's not the case.

Bob Lang is a senior analyst and portfolio manager at

BigTrends.com

. He manages subscription services for the firm and writes timely articles about markets, trends and the economy. Lang's articles can be viewed on numerous sites on the Internet. Together with renowned market timer Price Headley, Lang has helped build his supported products into a winning class. He participates in a coaching forum for advanced traders in which he teaches his unique style of trading.