Back in Business

Call it a snapback rally with a little short covering, but today's gains are broad and impressive and cannot be easily dismissed as simply the relief of an oversold condition; it's looking like last Wednesday's intraday low of 1406.10 in the S&P 500 is perfectly matching up with the Aug. 16 opening, which ultimately spiked down to 1370, as a bullish confirmation or the successful retest of the 1400 level I have been looking for over the past few weeks.

With the indices finishing at session highs, this will mark the first time we've had three consecutive days of gains in over four weeks. This will also shift many of the sentiment and technical indicators, if not toward buy signals, then at least remove the sell signals.

On the options front, the two main gauges, the VIX, which has now declined some 15% to 24.20 in the past two days, and the put/call ratio, which has dropped to 0.75, are both showing signs of reversing their upward trend, and therefore, being on bullish signals.

Granted, these do tend to be lagging indicators, so I can understand the eye rolling in ensuing emails pointing out we've already missed what could be the bulk of the move as it comes after the S&P 500 has rallied about 4% in the past three days.

But better safe than sorry, and it's better to get confirmation that the market is returning to good health rather than worry about missing the few-percentage-point move.

On that front, my apologies for the dearth of posts today, but between doctors' appointments and a frozen computer, researching and posting was a bit on the slow side today.

Add the initial confusion surrounding the impact of the Transocean (RIG - commentary - Cramer's Take) merger with GlobalSantaFe (GSF - commentary - Cramer's Take) which wreaked havoc on not only their options, but the Oil Services HOLDRs (OIH - commentary - Cramer's Take), and it began to resemble an episode of "ER." The cause was contract adjustments for both companies' options. The good news is that all situations are under control with not only nothing lost, but it looks like we'll emerge today healthier and wealthier than ever.

Of course, that's on a percentage basis in which everything was broken, and I started with a dollar.

Topping the most active option list was the Financial Select Spyder (XLF - commentary - Cramer's Take), which saw massive liquidation in the December puts as investors are now feeling a higher degree of safety regarding how much downside protection is needed. Implied volatility dropped some 15% in the ETF, and individual names, such as Citigroup (C - commentary - Cramer's Take) have seen IV decline by 20% over the past two days.

A couple of tech stocks saw positive reversals off of 52-week lows, including Motorola (MOT - commentary - Cramer's Take) and Broadcom (BRCM - commentary - Cramer's Take). The stock-price gains were accompanied by above-average call buying. The question remains as we enter winter, is this the bears laying a trap for would-be bulls looking for a year-end run? Only time will tell.

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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.

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