With stocks sideways to lower on Tuesday, investors were wondering if the market was preparing for consolidation after Monday's sharp gain.
Concerns that the market may have run too far too fast may not be unfounded considering the recent advance built on a nearly 7% jump for July, the best month for stocks this year.
Once again headwinds seemed to whip down Wall Street with P&G and Dow Chemical both reporting profits that missed Wall Street's estimates. Also Ford sales disappointed.
Economic data added to the negative tone after factory orders fell steeply in June and pending home sales dropped to a record low.
Is the uptrend still alive? What should you be watching?
Instant Insights with the Fast Money traders
In the options market I noticed a big bearish bet in the SPDRs, explains JJ Kinahan of TD Ameritrade. A big customers bought the 110 - 104 put spread (basically 1100 – 1040 on the S&P). To finance it they sold extra 104 puts.
It’s someone taking a bet of a gradual downward move in the S&P, he explains. At 1040 they have to buy the S&P so it suggests they don’t think the S&P slides any lower than that.
I agree with that bearish bet, Kinahan adds. I'd go short the S&P. I think the market wants to test 1102.
I reduced my exposure to stocks once the S&P broke above 1100, reveals Pete Najarian. I went from about 75% invested to 35%. And where I didn’t take off, I bought puts for protection. I think we see the market sell-off from here.
The one thing that excites me is the XLF , Najarian adds. When I look at how banks have moved to the upside recently it gives me more confidence that broad market gains may be sustainable because the market isn't just being powered by commodity buying. Although I expect to see the S&P pullback I'd be a buyer of dips in the market.
I'm a buyer of dips too, says Brian Kelly of Kanundrum until the FOMC meeting next Tuesday.