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October Surprise?

Normally the October Surprise is directly related to the political season, which is in full swing.  This time the surprise may be more related to consumer reaction from economic and market fundamentals, and that surprise may likely be a negative instead of a positive.

So far, a surprise came today from Goldman Sachs, Deutsche's  Bank, and Ben Bernanke (well not so much Bernanke).  Goldman's downgrade of MSFT, JCP and M along with Deutsche's downgrade of AA initiated the downtrend today.  Bernanke's comments didn't help as he stated the obvious about debt and deficits.  The US economy cannot sustain current debt levels and unless Congress controls and reduces spending the US will look more and more like our friends in Greece with the exception that China will have ceased buying our debt.

With the beginning of earnings this week and major employment data due on Friday, trading volume may continue to be below average as the investment community waits to see if major reports indicates that it's time to buy or sell.  I suspect we'll find ourselves in a correction from Septembers accelerated up move that finds a range instead of a bearish direction for most of this week.  Of course, Friday's data could be the catalyst of a significant correction if numbers are worse than expected.

As for option activity, the October 103 Puts had exceptional activity and was more likely initiated by sellers instead of a buyers, meaning that 103 is a good support level for the next 9 trading sessions.

CTM trades:

AMZN - an October AMZN 165/170 Bear Call spread was filled today.





Disclosure: Positions are identified in the body of the blog.