Was that a double bottom I just saw? The S&P 500 index hit an intraday low of 1260, which was within a hair of the 1257 low from March 17, before finishing higher on the day. Today's close of 1284 was not as dramatic a reversal as the 35-point rally in March, but it still puts a punctuation mark on the downside risk.
Now expect some work, or as they say some healthy consolidation, before we get a narrow, low-volatility rally through the balance of the summer. Speaking of volatility, the VIX did hit 25.60 before finishing down 2% at 23.40; not exactly a huge spike, but still a nice reversal. A pole is a pole, and it provides a bullish signal. OK, maybe a weak bullish signal.
One of the reasons to remain skeptical is that this was the financials that led the turnaround. Stocks such as JPMorgan (JPM - commentary - Cramer's Take), Bank America (BAC - commentary - Cramer's Take) and even Wells Fargo (WFC - commentary - Cramer's Take) saw heavy option activity in the July and August series.
But most of the volume was on the put side, suggesting that traders are selling high volatility as a way to collect premium on the belief that the downside of these companies is limited, but also that there is upside over the next month or two. In fact, much of the activity took the form of spreads, which limits both profit and loss, indicating the lack of conviction to the upside, or more likely, the fear still in place that any of these banks or brokers could continue to cave.
Steven Smith Blog Off-the-Radar Copper Play 6/30/2008 12:00 PM EDT Encore Wire's equites are rangebound. The options tell another story.
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.To read more of Steve Smith's options ideas take a free trial to TheStreet.com Options Alerts.
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