Investing Blog

It has long been accepted that January is a bellwether for the performance of the stock markets for the rest of the year. That is, if stocks rise in January, the market will rise for the rest of the year. If stocks fall, stocks will drop for the rest of the year. The bad news is that stocks have shed some 3% already in January 2010.

Big Money Agrees

Big money is already lining up to protect itself from moves as great as 20%. Reuters reported on serious option action worth $1.2 Billion in stock meant to protect from a fall as great as 20% before March. Click here to get the details These kind of big bets usually imply a big player who is well informed on where the market is headed.

In the Retail ETF, an investor bought 115,000 March $28 puts at a premium of 12.50 cents per contract, offer side, The XRT shares rose 8 cents to $35.34.
The Regional Banks ETF attracted a buyer of 60,000 March $20 puts at 22 cents per contract, near offer. KRE shares slipped 39 cents to $24.64.
The Consumer Discretionary ETF had a buyer of 140,000 March $24 puts at a premium of 12 cents. The XLY was off 3 cents to $29.56.
And in the Basic Materials ETF there was a buyer of 78,000 March $26 puts for 22 cents, and closer to the offer. The XLB edged up 4 cents to $32.30.

All of the options placed were on names very closely tied to the economy: banking, retail, consumer discretionary products, and basic materials. This kind of heavy action suggests the market isn’t afraid to play it safe, or even bet on the downside.

Where we go from here

With consumer debt spiraling downward and consumers still making sure to balance their checkbook, any recovery is still months away. Consumption is down, as well as a willingness to take on new debt, which surely points to a moderate level of deflation on the horizon. Also, the Fed is considering raising rates, another strike against stocks. It looks like the bellwether may be right…

ETF