With the S&P 500 dipping below the key 1000 point technical level, traders have been worrying all week whether the summer rally has run its course, or if it still has more upward room to move.
The Dow found itself down nearly 150 points during intraday trading, on the heels of week of positive treasury auctions and a report that industrial production gained for the first time in 9 months.
The options action today has seen investors hedging themselves and buying calls to participate in the rally, says Scott Nations, CIO of NationsShares. "For the most part, people are doing stock replacement by buying index calls," he says.
President of Stutland Equities, Brian Stutland, points to the levels of volatility in the market , which remain at high levels compared to the market's movement. He thinks there was a bit of a surprising move to the downside after Friday's consumer sentiment number, but he suggests going long when the S&P dips below 1000.
Bill Strazzullo advises looking at the range that the sector will be moving between: "Unless you see the XLF back below 13, the path of least resistance is still higher. I think we go to 15, or even to 2008 levels of 17 or 18," he said.
Brian Stutland adds that there has been a significant amount of put protection being bought for Wells Fargo in September and October puts. He thinks this amount of protection will allow investors to be confident when buying into pullbacks.
"For the first time in a long time we've seen Citigroup calls that are more expensive than puts. It's usually the other way around," adds Scott Nation, "this tells us that people are reaching. They want to buy calls to participate in some of these second tier names by buying upside calls."
Where Is The Consumer?
It has now become a technical picture, in oil, you have a classic double-top formation." He sees the movement today as the market rolling over and meeting with fundamentals, which are bearish.
Terranova is looking at Transocean, Schlumberger and Weatherford which are seeing a pullback off of Thursday's strength. Risk is being taken off these names and selling is correcting these companies to the downside, he says.
With a 52-week high in Home Depot this week, industry peer Lowe's reports ahead of the bell on Monday. Should you buy? Scott Nations is a seller.
Clothing retailer Abercrombie & Fitch was one of the few names trading higher on Friday, does this mean it's time to get in? "Until the recovery scenario is off the table, you gotta buy," say Steve Grasso.
Steve Grasso is watching the biggest retailer in the world, Walmart. "I have loved Walmart for some time," he said, "it's a safe haven bet." He sees Walmart trading higher if the recovery isn't as strong as people think and sees it as a great hedge for any portfolio.
Call The Close:
Bill Strazzullo: If we see a break below 990 in the S&P, we could see some weakness, but you still have to be looking for places to buy.
Brian Stutland: I'm a buyer.
Scott Nations: I'm a seller.
Steve Grasso: You gotta be buying the market!