Well, we finally got some good breadth on a strong day in the stock market...as the advancers vs. decliners were 11 to 1 positive on the S&P 500 index yesterday! It was strange that the breadth was only 1.4 to 1 positive on the Nasdaq Composite index and 2.3 to 1 positive for the NYSE Composite index, but at least we got some great numbers on the most widely watched index for the U.S. market......The volume was subdued at just 3.1bn shares, but given that it’s the week before Labor Day weekend, that number is not a disappointment. (It would have been more compelling if it was a big number, but that relatively low-volume reading was not a problem.)
The issue we highlighted (again) yesterday about the options market (negative gamma and the market makers) seems to be getting more attention...as we saw a few more comments from the Street on this subject yesterday. The point is that these buyers...along with the algos...are giving the market its recent one-way move. The big problem is that at some point, the situation will reverse itself...and we’ll get a one-way move in the OTHER direction.
The realization among some investors that the market could (and even should) turn on a dime in a significant way is probably the reason why as the S&P 500 has rallied 4% over the past six trading days (+5.2% for the Nasdaq), but the VIX has ALSO rallied...by a full 20%!. In other words, as much as the small guys are buying calls, some of the smart money is starting to hedge themselves by paying up for puts (which is something we saw at the top in the 2000).
With the unemployment number coming out tomorrow, it could/should give all investors a reason to sit on their hands ...