We've got a handful of things to look at today. Rather than dwell on any of them, let's just get straight to the point with all of them. First, we have a brief observation about yesterday's winners (which were few and far between). Second, we'll look at a challenge many of the sentiment indicators are currently facing. And finally, we'll wrap up with an option trading idea.

What's Up With Hardware?

Did anybody else see Monday's unusual winner? The AMEX Hardware Index (HWI) was making gains, albeit small ones. The only other major sectors making gains were energy and utilities, and those were up primarily because they typically are independent of the rest of the market. Whenever you get an outlier like hardware stocks were yesterday, it's worth knowing why. My initial thoughts were that it was one key stock making a huge move, and dragging the whole sector up with it. If not that, then it was a groupwide move. In either case, that strength is at least worth examining as a potential 'buy'.

As it turns out, it wasn't just one stock keeping the entire index aloft. About half of the top ten index components were up in a fairly big way. The winners include Apple (AAPL), Gateway (GTW), Network Appliance (NTAP), Hewlett-Packard (HPQ), and Sun Microsystems (SUNW). To be fair, the other major components were flat to lower, but it doesn't change the fact that this index was up big when the overall market was down big. How big was the move? It was the second (and higher) close above the 200 day moving average. We've seen that signal fizzle out before....just a few weeks ago in fact. But still, something's going on here.

Our take? One day does not make or break any trend, but this has our curiousity peaked. These stocks are traditionally the first to fall in troubled waters. Seeing them rise in the face of adversity has to make me wonder if folks are a little more bullish that it would seem they are right now. The charts don't lie......clearly somebody is buying these stocks. So, I have to at least acknowledge that strength. I don't know of those five stocks I mentioned are the best plays in the group (many of them are still very new lows ofr the year), but I would recommend that we all put this industry on our radar - these stocks can rally in the blink of an eye.

AMEX Hardware Index (HWI) - Daily

VIX Has Gone Crazy

Last week was a triple-witching expiration. That just means that monthly as well as quarterly call and put options expired on Friday. All that activity is a lot for the market to digest, and it really didn't do very well with it this time around. It was a volatile week, and one of the results was a virtual scrambling of one of our key sentiment indicators - the CBOE Volatility Index (or VIX). The VIX had been trending lower pretty nicely, while the market was moving upward accordingly.

All that turned into a mess last week. Look at the highlighted area on the chart below. Any chance of using the VIX as a sentiment tool is currently put on hold. As of now, the brush with the lower band and the move higher on Monday hints at an upside move, but we'd advise caution with the VIX right now - it's been all over the map over the last few days. Give it a couple more sessions to re-establish an actual trend.

CBOE Volatility Index - Daily

An Option Trading Idea

We talked about credit spreads yesterday, so today we'd like to offer another option strategy that may be appropriate right now - straddles. As the name implies, an option straddle is just a way of playing both sides of the market. To enter a straddle, you just buy a put AND a call, each with the same strike price and expiration (typically). Aren't those tow trades complete opposites? Yes. Wouldn't one lose and one win? Yes, but that's the idea. The winner will be much bigger than the loser, IF the market actually moves. The nice part about this kind of trade is that it doesn't matter which direction the market moves - you'll generate profits as long as the market moves. The downside is obvious though....you lose if the market doesn't move at all. Then your options would just lose due to time decay, without ever getting a chance to gain intrinsic value. This type of strategy may be worth a closer look right now, when it's not clear where things are headed next, but when it feels like we're on the verge of a lot of volatility. Just something to think about for savvy option traders.