Monday, July 07, 2008

Option Traders Wary of Early Bounce For Stocks

There is not a lot of news this morning following the holiday weekend. The market is getting a nice bounce, although I doubt many people trust it right now.

This bounce is coming off a very oversold reading. I have had some people call me out for highlighting the oversold market, saying I was early to call a bounce. This is true, I have been early. But such is the case with oversold markets, as there is nothing that says that an oversold market can't become more oversold before it bounces.

That said, the market has been down for 5 consecutive weeks, and I think this bounce should be fairly sharp. I also think few are positioned for it, as most probably have gotten more defensive recently. Not to mention the energy leadership trend might be waning.

Asian markets were mostly higher overnight, some bouncing meaningfully. The dollar is higher again vs. the Yen and the Euro, which is helping take some wind out of the sail of both gold and oil. Oil was down as much as $5, but is now trading near $141.

Option traders were trying to fade this bounce right from the open. The CBOE put/call ratio is at 1.11, and the ISEE opened at an extremely low level of 55. Not many believers out there. I will be looking for places to put some cash to work today in anticipation of a bounce.

I am also getting ready to start my 21-day "body cleanse"-- only raw fruits, veggies, and nuts for 3 weeks. Ugh. Not going to be easy, but people I know who have done it said they felt fantastic. Giddy up.


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