Scale Into Short Positions Heading Into Next Week!

November 26, 2008
Author: Peter Stolcers, Founder of OneOption

Yesterday, the market staged a nice little late-day rally. It has also rallied this morning after opening lower. I would not read too much into this price action since it comes on light holiday trading. This morning we learned that durable goods fell 6.2% in October, more than twice what analysts had expected. Spending fuels two thirds of our economic activity and it fell 1% last month, the biggest decline since 9/11. ISM came in at 33.8 when analysts expected 37.8 in October. A number below 50 indicates economic contraction. New jobless claims fell by 14,000 last week and that was better than expected. However, claims still stand at a seasonally adjusted rate of 529,000. That level is typically associated with a recession. Obama continues to appoint his cabinet and the market likes his selections. Bailouts in every shape and size have been thrown at the market and it's getting hard to sort out all of the plans. Needless to say, money is being thrown at the problem. Our national debt is skyrocketing and we are trying to spend our way out of this mess. Other countries are trying to raise capital as well and the competition for funds will be fierce. As more people lose their jobs, the credit crisis will worsen. Next week's Unemployment Report will cast a dark cloud over the market and selling will set in just as it has in previous months. I believe last week's low will be tested next Thursday. There is a chance that we will grind higher today and Friday. View any rally as an opportunity to scale into short positions. Passive accounts should sell OTM call credit spreads on retail stocks and REITs. Aggressive accounts can buy very deep puts that are trading near parity. Have a great holiday and remember that we have much to be thankful for. image

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