Did Yesterday's High Put/Call Ratio Set Up Today's Rally?

The market is nicely higher in early trading, nearly reversing yesterday's light volume selloff. There is still little in the way of corporate news this morning, but there are a few economic reports later today.

Asian markets were lower overnight, but Europe is higher this morning. Sentiment in Europe improved after Portugal had a successful debt offering. This is also helping the euro bounce relative to the dollar.

Commodities are mostly higher (lumber is limit up), with oil up to $74.50 and gold higher at $1260. Gold is very near to breaking out to new highs on the year.

The 10-year yield is higher to 2.65%, ahead of one of today's key reports, which is the Treasury's $21 billion auction of 10-year Notes. Also, the Fed will release its Beige Book at 2:00pm EST, which always stirs the market.

Among sector ETFs, financials (+1.34%) are leading, followed by materials (+1.17%); utilities (+0.16%) and consumer staples (+0.40%) are lagging.

And the volatility index (VIX) is down -2.6% to 23.18 after yesterday's big spike higher.

Trading comment: The S&P 500 is right back at the key psychological level of 1100. Yesterday, the put/call ratio rocketed higher to close at 1.33, which is a very high level. I'm not sure what caused the rush to buy puts, maybe it was the concerns emanating from Europe. Regardless, I think the bears' overreached yesterday, and today looks like some of those puts are being sold (or stocks are being bought to offset exposures).

Leading stocks continue to act well, and more stocks are breaking out. As long as the overall market doesn't rollover again, I expect this type of action to continue. Volume will likely slow as the day rolls on, as those who are celebrating Rosh Hashana will likely head out early and then take tomorrow off.