Post-Washout Rally?

Friday, 20 Jun 2008 | 4:01 PM ET

While the bears are clearly running the show on Wall Street, Fast Money’s Jon Najarian is seeing signs that a rally could be ahead.

He looks first to the VIX, the CBOE’s measure of volatility in the market, to make his case. The spread between the front and back month contracts was five points just weeks ago, which signals to Najarian that investors were overconfident.

But the drops in the S&Pand Dow Industrialsover the last month, and the subsequent backwardation in the VIX where the front month contracts are now higher than the back month, is indicative that the market could be setting up for a rally, Najarian said. Capitulation is here, at least in some stocks.

Fast Money Final Call
The Fast Money final call, with Jon Najarian, co-founder of OptionMonster.com

Some of the financials are still likely to see more downside, he said, and he’d keep an eye out for a “washout” in the XLF before buying back in.

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  • Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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