June 30 served as the month-end, quarter-end and halfway points for the year. Big funds often do “window-dressing” (i.e., last-minute portfolio adjustments) during this time. This typically puts upward pressure on equity prices and can certainly make equity pricing move in unpredictable ways, either up or down.

So, to say the overall market picture is a dismal one is probably an understatement at this point, but we don’t necessarily take our cues from the broader markets.

SELLING RAMPANT, BUT NOT ‘RAGING’

We’re options guys at heart, and our options signals — which gave us a clear sell signal at the beginning of June — continue to say “sell” and appear to have a ways to go before they indicate a change in course.

Interestingly, though, we are not seeing the usual signs that the market and sentiment have reached extreme levels and are about to reverse course. There is no panic.

Our guys in the trading pits tell us the selling is orderly. No frenzied action. Just steady, orderly selling. And our options signals continue to indicate that the market is on a downward path. A negative market bias should be your general compass direction as you navigate the intermediate term.

Short interest is up 45% year-over-year, and this June has been the worst June for the Dow since the Great Depression in 1930. Historians say the typical bear market involves a 30% to 50% drop from the top. Leading technicians are warning of Dow (DJI) 10,000 by the time this bear is done.

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‘CONFESSION SEASON’ COMES EARLY

Since we flashed back to the Great Depression, let’s also refer briefly to some other challenging times, both past and possibly future.

Although corporate earnings estimates have been brought down by almost half since the beginning of the year, it is likely that they are still too high. Analysts are still modeling 7% growth in corporate earnings in 2008. The last two recessions saw several quarters where forecasts were written down significantly, implying downgrades have further to go.

We’re entering into something that’s known as “confession season.” This is when companies finally admit that not only will their numbers miss expectations for the current quarter, but also that their estimates for the full year are also too high. Confession season typically coincides with the third quarter.

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PUT BUYERS AT THESE LEVELS?

We had posted a note on OptionsZone.com about put buyers coming out of the woodwork in several companies, including the Geo Group (GEO), MSC Industrial (MSM) and Activision (ATVI).

As we’d noted, “Not surprisingly, there has been a ton of put activity as investors have been hedging long positions. In essence, investors have been buying insurance. We saw a few notable put trades that could also be hedges, but their volume is unusual enough that it has caught our attention at Big Money Options.”

Conventional wisdom suggests that when a market is at or near its lowest point, it’s time to buy stocks or establish stock-surrogate positions in calls, and this type of defensive action tends to point toward folks hedging their positions.

However, not all put-buying is done as a hedge, and especially not on the big-money, institutional level like we’re watching at Big Money Options.

In fact, we’ve got three put option positions on the table right now that are up 42%, 59% and 90%, respectively. And we’re just getting warmed up!

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If you enjoyed this article, check out Nick Atkeson and Andrew Houghton’s “Befriend the Uptrend” and “Big Ben Strikes Again.”