The Big Squeeze

Energy and materials? Caterpillar (CAT - commentary - Trade Now)? What the heck? How can these be rallying so hard? Perhaps because they were such great shorts last week.

We have seen this pattern a gazillion times. The market gets rocked for four weeks and suddenly the bears come out of the woodwork and begin to short everything that's not nailed down. They use triple-leveraged products. They buy a huge number of puts. They operate on anything and everything.

We saw huge put-buying in the Oil Service HOLDRs (OIH - commentary - Trade Now) and the banks. Remember that many of them had broken down to the levels where their secondaries had been put on or below them, with BB&T (BBT - commentary - Trade Now) and Wells Fargo (WFC - commentary - Trade Now) hanging by a thread and PNC (PNC - commentary - Trade Now) really breaking down. Not only that, we had Capital One (COF - commentary - Trade Now) getting crushed.

We got an interview with Ken Chenault from American Express (AMX - commentary - Trade Now) where he said simply things aren't getting any better. He would not even endorse the "less bad" thesis.

And the presumption going into earnings was that they would be disastrous -- everything from the big guys like Intel (INTC - commentary - Trade Now) to little guys like Bemis (BMS - commentary - Trade Now) and W.W. Grainger (WWG - commentary - Trade Now) to cite two stocks that were better than expected.

The Caterpillar and Google (GOOG - commentary - Trade Now) situations were looming large going into yesterday's session. These companies were delivered what looked to be knockout blows by analysts off of weak earnings prospects.

The stocks are rocketing today. Can you imagine how many people might have bought near-term puts on these?

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