The in-line jobs data have allowed stocks to hold the line on their old lows. It is critically important that the S&P 500 Index stay above the 1260 level. It also helps that oil, which started the day above $146 a barrel, has pulled back a bit.
But stocks still remain vulnerable and trading is likely to become choppy as liquidity thins out due to traders' early exits. It will be important for stocks to maintain a healthy cushion above the unchanged line through midday, or we may get a cascade of selling in the afternoon as investors continue to dump stocks ahead of the long weekend.
Names that are likely to top the most active option list include NVIDIA (NVDA - commentary - Cramer's Take), whose shares are down 20% after the graphic chips maker badly missed revenue forecasts and lowered guidance. The option market had been pricing in about a 7% price move. Owning options, despite the decline in implied volatility that is likely to occur following an earnings report, will be more than offset by the magnitude of this price move.
The other area to keep an eye on will be the commodity-based companies. Even as the price of the underlying commodities rose in the futures pits on Wednesday, oil and grains were all up sharply to new record highs. But the shares of stocks in the coal, steel and agriculture sectors were hammered. Some stocks such as US Steel (X - commentary - Cramer's Take) and Arch Coal (ACI - commentary - Cramer's Take) were down by as much as 20% on the day. Implied volatility jumped some 15% across the board in these names.
But most of this seemed to be profit-taking as overall option activity was relatively light and put volume barely outpaced call volume. So the question is: Are we seeing a changing of the guard or will this prove to be a buying opportunity to get into the sectors that have posted huge gains in the past year?
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