NASDAQ 100 (NASDAQ - QQQQ)verall implied volatility at 26; 26-week average is 32

Semiconductor Holders Trust - SMH overall volatility at 30; 26-week average is 38

Russell 2000 - IWM overall implied volatility at 27; 26-week average is 39

Financial Select Sector - XLF overall volatility at 37; 26-week average is 58

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

NASDAQ 100 (NASDAQ: QQQQ) overall implied volatility at 28; 26-week average is 35

Semiconductor Holders Trust (NYSE: SMH) overall volatility at 36; 26-week average is 43

Russell 2000 (NYSE: IWM) overall implied volatility at 34; 26-week average is 44

Financial Select Sector (NYSE: XLF) overall volatility at 49; 26-week average is 65

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

The New York Times has come along with a novel theory. Small cap stocks will be the leaders as the market comes out of its current funk. The paper writes "Despite all the bad news surrounding record-high oil prices, mounting job losses, and continuing troubles in housing, the Russell 2000 index of small stocks has soared 12.7 percent since mid-March."

All theories have a counter-theory. Small cap stocks are not taking the market anywhere.

One of the reasons that the Russell has done well is that it has no large bank or financial stocks in it like the S&P 500 and Dow do. The Dow has too many troubled companies in it to be doing well, with Citigroup (NYSE: C) and General Motors (NYSE: GM) as two examples.

It is not hard to argue that small cap stocks will have a sharp sell-off in the second half. Their access to credit for expansion is modest because they usually do not have the balance sheets to support big borrowing. The customers are just as likely to be hurt by a recession as the customers at big companies.

The move up in the Russell is nothing more than a sucker rally.

Douglas A. McIntyre is an editor at 247wallst.com.

Small cap stocks have lagged the broader market for most of this year. Through early this morning, the Russell 2000 index -- which has an equivalent exchange-traded fund, the iShares Russell 2000 Index ETF (AMEX: IWM) -- has dropped by 4.3%, while the S&P 500 index has gained 1.7%.

Nonetheless, with investor optimism at multi-year lows, the prospect of another Fed rate cut at the next meeting on December 11th, and some reassuring news from the financial sector, share prices could be bolstered in the near term by some contrarian bargain-hunting.

Technically speaking, the Russell 2000 has formed a bullish double bottom on both the absolute and relative charts. Given that, small cap shares may be just the way to play a near-term corrective bounce.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.

Based on an analysis of data from 1979 - 2005, the next four-to-six weeks has been a seasonally weak period for the Nasdaq Composite index and the Russell 2000 index relative to the S&P 500 index.

While it's hard to say for sure why those two measures have tended to underperform the broad market around this time of year, several possible explanations come to mind:

• Pressure from mutual funds cutting losing positions in volatile or thinly-traded issues before the books are closed at the end of October

• Asset allocation shifts in favor of larger, more defensive shares amid uncertainty over back-to-school sales and the upcoming holiday selling season

• Attempts by traders and portfolio managers to cut risk exposure and dampen portfolio volatility as the time approaches for end-of-year bonuses to be decided

Of course, seasonal factors aren't the only driver of share prices, and the pattern this year could turn out altogether different than in the past.

Nevertheless, the possibility that small cap and Nasdaq shares could lag other issues in the weeks ahead is something worth keeping in mind.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.

Although they spent most of the day in the green the indexes gave up ground through most of the session to close just in the red.

The NYSE had volume of 3.6 billion shares with 1,612 shares advancing while 1,706 declined for a loss of 6.18 points to close at 9,428.86. On the NASDAQ, 2.2 billion shares traded, 1,426 advanced and 1,685 declined for a loss of -2.65 to 2,542.24.

EMC Corporation (NYSE: EMC) rose $1.33 (8%) to $19.05; ahead of it's subsidiary VMware making its debut on the NYSE tomorrow in an IPO that analysts are predicting will be big. EMC will retain 90% of the shares. This is likely the reason for the active calls as EMC Corp. (NYSE: EMC) saw heavy volume on the August 19 calls (EMCHT) with over 56,000 options trading.

Centex Corporation (NYSE: CTX) fell $2.78 (-7%) to $35.63. Lennar Corporation (NYSE: LEN) fell $2.53 (-7%) to $32.92. Brinker International (NYSE: EAT) rose $1.82 (7%) to $28.98. The Goodyear Tire & Rubber Company (NYSE: GT) rose $1.70 (6%) to $28.95.

In options there were 5.4 million puts and 5.8 million calls traded for a put/call open interest ratio of 0.92. The CBOE Volatility Index has been high closing today at 26.57. This is the fear indicator of the market. Not only is the index up, but options on the index are high with the CBOE S&P 500 Volatility Index (NASDAQ: $VIX) moving volume on the August 25 calls (VIXHE) with over 35,000 contracts.

Other stocks with active options include State Street Boston (NYSE: STT) saw heavy volume on the November 75 calls (STTKO) with over 60,000 options trading. Most of the active puts were on the indexes and the iShares Russell 2000 ETF (NYSE: IWM) had volume on the August 78 puts (IOWTZ) with over 86,000 options trading.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

One asset class that has outperformed the broad market for nearly a decade is small cap. Since the low in April 1999, the Russell 2000 Index -- which has an equivalent exchange-traded fund, or ETF (AMEX: IWM) -- has gained 80 percentage points more than the S&P 500 index.

Over the past few months, however, this group has begun to languish. Recently, the small cap benchmark broke below key short- and long-term support levels relative to the S&P 500, suggesting that, in comparative terms at least, the good times for small company shares may be over.

Interestingly, this turnabout comes at a time when the stock market has been frothy, but has not seen widespread participation by small investors. I wonder if the two developments are somehow related?

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World.