“Super Tuesday” Is Super For Bearish Option Traders

Yesterday, the stock market tested the downside and it just kept slipping the entire day. Weak economic data is the driving market force right now. I have been a buyer of commoditiy stocks and they have been holding up. My option trading still focuses on scaling into value and I am establishing long-term positions. Last week, the GDP showed slow economic growth and the unemployment number came in much higher than expected. This morning, the ISM services index came in much lower than expected. The number leaked out before it was officially released and the market dropped quickly. Foreign markets were weak overnight. European banks were down as much as 4% and there are rumors of a subprime debacle at Royal Bank of Scotland Group PLC. The ECB will meet this week and if they don't change their tone, it will weigh on their markets. Even a shift from hawkish to dovish might calm the markets without a rate cut. To date, they don't seem to care about the financial crisis, they are focused on inflation. Chinese markets will be closed until February 13th and that could create anxiety for those shareholders if global markets are declining. Their market was down 1.5 % yesterday. I had mentioned that the economic releases are fairly light this week. I did not figure that we would see a dramatic miss. There truly are not any other economic numbers until the initial jobless claims on Thursday. Some of today's nervousness might also be attributed to "Super Tuesday". By tomorrow, we will know who the front runners are and the market will adjust accordingly. The earnings are generally good. It is the uncertainty in the financial stocks that is generating anxiety. If the government would simply step in and shore up the mortgage insurers, I believe they would stabilize the market. This action would cost the same as the tax rebate program and it would have an immediate impact. I don’t agree with much of what he says, but I heard this concept from Cramer first. The market is testing the SPY 134 level. That was the low from last March and August. If that level gives way today, and it looks like it might, the market could test the capitulation lows from two weeks ago (in the next week or two). I believe the ECB’s interest-rate policy could be the determining factor. We will know the rhetoric Thursday morning. The momentum is clearly to the downside today. The bulls have not been able to generate much of a bounce and I do not believe that this market will rebound today. The commodity stocks have been holding up well and your losses should be contained. On a positive note, the 4-horsemen (GOOG, AMZN, AAPL, RIMM) are holding up relatively well. That might mean that tech has found a floor. I am still more interested in being in cash on the declines and getting long on the “air pocket dips”. I am seeing some great values. Fixed income seems like a lost cause since the returns are not even keeping up with inflation.

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