Take a look at where the big money is going? Puts,Puts, Puts.
I expect another big selloff as rates will surely be going up and all the good news about corp profits are behind us.
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CHICAGO, Oct 22 (Reuters) - A large U.S. institution was
buying S&P 500 index (INDEX:$OEX) November put options in good size,
apparently making a bet that the market's recovery from last
week's selloff will be short-lived, traders said Wednesday.
The SPX November 930 put traded 4,440 contracts, the
November 935 put traded 4,205, the November 940 traded 7,205,
the November 950 put traded 2,240 and the November 960 put
traded about 5,570.
Overall, SPX put activity swamped call activity by 35,618
to 5,506 at 1130 CDT/1630 GMT.
The stock market was already giving back some of the strong
gains made earlier in the week, with the spot SPX losing 5.05
to 967.23 and December S&P 500 futures easing 5.85 to 973.60.
The flagship Dow industrial average (INDEX:$INDU) was off 47
points at about 8,013, recovering from its intraday low of
7,993.
After losing nearly 200 points last week, the Dow rallied
about 213 before dropping back Wednesday.
The SPX puts would become most profitable if the market
declines, and analysts were mixed on the chances of such a move.
"Usually when you have momentum like we had early in the
week, it takes a while to burn off, so there will probably be
another rally attempt," said Jay Shartsis, head of options
trading at R.F. Lafferty & Co in New York.
"But I'm looking for some ugly things in the market and not
in the distant future," he added.
But Christopher Cadbury, who publishes a daily market
letter, said he has seen no signs that the recovery rally,
though stalled today, would not get back on track.
"There's some resistance over 8,000 (on the Dow) but I
think support under 8,000 is likely to take us up again," he
said. "In fact I'm pretty sure it is."
He expects the SPX to rally to the 995 to 1,000 region by
the end of November.
Support under 8,000 in the Dow comes in at 7,992, around
where the market bounced Wednesday morning, but a move much
below that could start a five- to eight-day decline, said
Richard Scarlata, editor of the Sutton Advisory Letter.
He added that he expected a move below 7,992 later today.
"We had a natural bounce after the expiration of October
options," he said. "Momentum players came in and we had a good
bounce. We got above 8,000 (on the Dow) and that added
credibility to the rally, but my feeling is it was purely a
technical bounce rather than a fundamental shift."
He said signs are cropping up to suggest earnings growth is
slowing, interest rates are headed higher, monetary policy will
be tighter and inflation will return.
"Those are all negatives for the market," he added.
His first target for the Dow is last Friday's low at about
7,756 and then the 7,400 area, which would represent a 10
percent correction from the highs. He said that zone could be
reached in late October or early November. |
