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The New Capital Observer

I will be launching a new Capital Observer site today with a new look and a new host. Those who have not changed their bookmarks or feeds will need to do so today. I will post at the old site once the new site is up to notify readers.

Citigroup Reverse Split

Citigroup is doing a 10:1 reverse split. I am very happy about this as Citigroup options were skewing the put/call ratios. It was not uncommon to see 100,000 calls trading in a day because of the low stock price. I believe this will lead to much cleaner reads.

April Flowers

I believe that its likely we have already seen the lows for the current correction. Typically, after such a strong move lower we see some sort of a retest. However, next week is the turn of the month heading into the strongest month of the year. I believe the reason for April's strength is that its tax refund season and a lot of refunds finds their way into the market.

Given the calendar the bears don't have much time to get to work on a retest. We could see some weakness at some point through early next week but I doubt we will revisit the lows. I believe that weakness is a buying opportunity and that April will be a good month for investors. The Summer could prove to be more challenging.

Constructive

I believe today's action was constructive. There was a lot of put buying today and yet the market has managed to hold itself together. I have not yet updated the chart below for today's put/call ratio but today's action takes it up to the 1.00 level.

I remain constructive through April and believe dips are for buying. Have a great weekend.

*I would also note that the only time this entire bull market that CBOE put/call ratio exceeded 1.00 was this Summer after the Flash Crash and Persian Gulf Oil Spill . The previous time was in January 2009, during the bear market.

** I know many readers prefer the equity only reading. We are also at an extreme on that indicator as well. 

A Long Explanation

A reader asked me in the comment section why I sold covered calls if I thought the market was oversold? Here are a list of reasons:

• At that point the S&P 500 had bounced 40 points from the lows two days ago. I thought it prudent to take some profits while remaining long.
• In my opener I also discussed the possibility of a retest. I want to be in a position to be able to buy on a retest.
• I sold covered calls at prices where I would be willing to part with the stocks. 
• I do things in steps. I generally buy slowly on the way down and sell slowly on the way up. This way if we chop around in a range I could make some money off of the volatility. 

Why These Huge Buybacks Are Bullish

I believe the large share repurchases are especially important for the financial sector. While its bullish for any sector when a large amount of the shares are being repurchased, it might be even more so for the financials. The reason being because managers are underweight financials. If they start to outperform it will put a lot of pressure on managers to get them back to an equal weight rating. Its almost as if they are short them.

From a fundamental perspective I am not a fan of the financials. I don't know how to value them. This is a pure trade and the size will remain small.