No More Silver Bullets – Option Traders – Favor The Downside!

Yesterday, I got a little long-winded so I'll keep this brief. The market had been expecting the government’s bail out of Fannie Mae and Freddie Mac. Without it, a financial collapse was possible as investors would have lost faith in our system. This move bought us time to work through this mess, but it did not solve the problem. Monday's rally was merely a knee-jerk reaction to the first shred of good news. Yesterday, the bears jumped on a golden opportunity and they pounded the market. The Fed has fired its last silver bullet and now we will wait to see if it hit its mark. That's really what this all comes down to. This recession will have to run its own course and there aren't any white knights to come to the rescue. Global economies are slowing and our unemployment rate is climbing. Years of loose credit led to extreme debt levels and this credit crisis could take years to run its course. Of course, we could just print more money. I can't believe the Democrats are lobbying for another stimulus package. Our government is already up to its eyeballs in debt and the last one wasn’t that effective anyway. The market is vulnerable and we are seeing big down days. Yesterday, the VIX spiked and fear is creeping back into the market. This is a seasonally bearish period and it is likely that we will retest SPY 120. I believe the next round of weakness will come from consumer stocks. On the positive side, the panic selling in commodities is setting up a capitulation low. I believe these stocks represent a great long-term buying opportunity and I am starting to eye them up. I want to see another decline and a sharp intraday reversal in commodities stocks. The rest of the week is light on news. Friday's PPI might generate a rally. Next week, we will hear in from the FOMC and I’m not expecting any surprises. The biggest news will come from the investment bankers as Goldman Sachs and Morgan Stanley release earnings. For today, I expect the market to chop around. During the first two trading days of the week, it has been all over the board. If it heads into negative territory with an hour left, we are likely to sell off into the bell. During yesterday's steep decline, we did not see an afternoon bounce and that tells me that we have not seen a temporary bottom yet. Although a rally is possible, I would not trust it.

Daily Bulletin Continues...