Stock Market Analysis

Thursday, July 10, 2014

US Market Takes Hit from Portugal

US market took a hit today on troubles in a small Portugal bank with the Dow sinking as much as 175 points lower intraday before closing at 16915.

So, how did a small Portugal bank make every investor rush for safety all of a sudden? In fact, it was a truly negative day with the VIX surging in response to the fall, short term bond yields ditching as investors rush back to the safety of bonds and options traders pushing total equities put call ratio above par in a bearish bid in favor of put options trading.

Does a small Portugal bank really have such a big impact on the US market?

Well, I think today's drop was one that was simply looking for a reason, any reason, to happen. The 17,000 points level was a huge psychological resistance level for the Dow and investors were already anticipating a significant correction at this level as the market has been over extended for too long. It only took the most insignificant of reasons for today's drop to happen. In fact, traders have been hedging their positions all month long with the total equities put call ratio lingering around par since the beginning of the month. I too have been anticipating a significant correction by the third quarter of the year with probably a significant bear market by the fourth quarter and I have already been preparing my Master's Stock Options Picks subscribers with some defensive positions in order to hedge against and profit from any unexpected drops.

On the plus side, economic data continues to be great with jobless claims falling more than expected in today's report. This, along with the fact that the Dow and the S&P500 did rebound off their 30MA, tells me that there still are reasons to be bullish in this market and that investors would most likely buy tomorrow on today's weakness. My Master's Stock Options Picks subscribers would then be able to take profit on most of our existing bullish positions in order to prepare for more volatility ahead.