Catch The Low

from Richard Band's Journal

CATCH THE LOW
October 20, 2004, 10:28 am EDT

The stock market is forming a good, tradable bottom in here. Within the next couple of days -- probably well before the election results are known -- Wall Street should make its peace with the political forces at work and move on to the traditional post-election relief rally.

What makes me so sure there’s a rally coming? I’ve kept an eagle eye on one of the market’s most reliable contrary indicators -- the behavior of the traders in the options pits. Whatever investors may say to pollsters or the media, the options data tell us what folks are doing with their money.

Truth is, the options players have been buying an exceptional number of puts (downside bets) lately, compared with calls. In fact, we’re seeing essentially the same degree of pessimism that prevailed at the lows in March, May and August this year -- even though the major market indexes are hovering comfortably above those lows.

I foresee a rally of 5%-7%, maybe a little more, on the S&P 500 by year-end or early 2005.