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MARKET INSIGHT: Traders Quiet, but Markets Move Lower Nonetheless


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Joel Addison, Optionetics.com
October 9, 2001


Another day of trading is in the books, but if you missed it, you didn't miss much. Though the majority of stocks declined, volume was once again light as traders have entered a wait and see mode. Tech stocks led the move into negative territory with the Nasdaq Composite ($COMPQ) falling 2.23%. The Dow ($INDU) had an extremely quiet day and had a range of only 82 points, ending down just 15.50 points. Broker dealer stocks led to the upside—the Amex Securities Broker/Dealer Index ($XBD) gained 2.22%. To the downside, chip stocks led with the Philly Semiconductor Index ($SOX) falling 5.87%.

Software issues were negatively affected today by news that Microsoft's (MSFT) appeal to the Supreme Court was rejected. This was highly anticipated, but still took MSFT shares down six percent. The CBOE Gsti Software Index ($GSO) fell 2.25%. However, I2 Technologies (ITWO) tacked on 21.65% after the company is being rumored as a takeover candidate.

Going forward, we can expect more of the same: uncertainty. Not only are there concerns about the war in Afghanistan, but earnings warnings and weak economic reports also keep putting fears of an extended recession into trader’s minds. It seems a large portion of negative news is already priced into the market, but no one quite knows to what extent traders have priced in a continued slowdown in the economy. However, even if a recession lasts longer than a few quarters, many stocks have likely seen their lows for the year. Long-term investors may want to increase their holdings in LEAPS and stocks as many companies are on sale right now. Short-term option traders may want to look at sideways trading strategies on the market. Even though volatility could increase as the war accelerates, it isn't likely that the major market indices will break out of their current trading range. 

Choosing the appropriate strategy for the correct time frame is crucial for the options trader.  We can often be right about the direction of a stock, but off on the timing, resulting in a loss when trading the wrong options month. When you find a stock that gives you the feeling that you know where it is heading, study different option strategies to see which one fits the view you have.


Joel Addison
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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