Tough end to the week. For the first time in months, the last two days has seen some notable call buying in the CBOE Volatility Index (VIX) — in other words, traders are buying volatility.
Also a notable uptick in the put/call ratio (the ratio of put buying to call option buying).
Why? People forget things were a lot more volatile six months ago, but in the middle of last year traders got so beaten up shorting the market that everyone stopped shorting and stopped buying puts. (See:VIX/correction outlook from Brent Wilsey & Alan Valdes.)
With the uptick in uncertainty—about China, about banks, about Bernanke—traders can smell that they can make a few bucks shorting the market.
What I don't see is really big volume—higher than normal, yes, but not really big.
This tells me it is still relatively few firms that are lightening up.
Bears beware: since March, traders have been rewarded for buying the dips—and we are only 5 percent off the 15 month highs we hit on Monday!
You can see the effect that talk about China raising rates had on commodity stocks this week:
Commodity stocks this week:
Alcoa down 14%
Freeport McMoRan down 12%
Newmont Mining down 7%
US Steel down 12%
Mr. Obama's speech on bank regulation was met with a selloff in banks:
Financials this week:
BofA down 9.0%
JP Morgan down 11%
Morgan Stanley down 10%
SunTrust up 5.5%
The market has taken on a decidedly defensive tone, as several stocks are still in the black:
Consumer stocks this week:
Safeway up 6.9%
Kroger up 5.0%
Colgate up 1.0%
Kellogg up 0.3%
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