Dow Closes Under 8000 For First Time In 5 Years - Still More Pain To Come

It looks like reality is beginning to settle in for traders around the world as we continue to be caught up in a whirl wind of havoc and bad news. Today we saw that the market has little patience or mercy for the doubts and fears going on in the world. Wow, there's a lot to talk about today...

Today is the first time the Dow has closed under 8000 in 5 years. It dipped below 8000 last month but came back above before the end of the day. Another historical number we saw today was our CPI numbers. We fell 1% for the month of October, which was far greater than expectations and is the single biggest monthly loss in CPI since the index began tracking in 1947. Housing starts fell 4.5%, which was near market expectation (but still depressing). Coupled with that we had a slew of bad earnings report from retailers as well as the auto bailout fiasco which still continues. Overall, it was a bad day for your average stock trader.

These are the things we have been discussing for a month now. No matter what new bailout news we receive, or little light given by government regulators, nature will take its course. And until the government allows it, unfortunately, I believe we will be in this continual roller coaster that can give traders a splitting headache. Not to say that I am a pessimist and wish the economy to crumble. I just saw the signs a while back and know that's what needs to happen in order to get things back on track, so why not make some money on the way, right?

So lets talk auto bailout. I still believe a lack of intervention from the government and the auto companies going under could be the shove the market needs to capitulate, especially now. I don't know if the government is ready to deal with that. I think we will see some agreement happen, even though I disagree with it. But until it does, it leaves uncertainty, which the market hates. Uncertainty and fear are key signs to capitulation.

So what else led to the downfall today? The FOMC minutes were released today from their prior meeting from a few weeks ago. In it they discussed of the probability of negative GDP growth for the next 4 quarters. Even though many of us have already expected at least that, to hear it come out of "The Fed's" mouth causes even more concern. Their suppose to be our super heroes right? You can see their minutes here.

In the midst of all this turmoil, I am still a believer of the good possibility of a rather strong rally in this bear market. In fact, call me crazy, but I picked up some UYG options (.UUFLF), considering UYG was down over 20% today. Financials have taken the worst beating of them all, and probably will continue to, but I just felt like it was low enough to give me some good profits for the next rally. These are those "defining days" I talk about that I like to wait for to buy. That was my only move today. Our "Rock Stars" looked great today. SRS and SKF were both were over $220, impressive. EEV is up to $110, and FXP is closing in on $88 (All were up anywhere from 15-25%).

My long options were down today, but not by much, surprisingly. GDX and Apple are weathering through the storm pretty well. DIG was hit hard do to demand uncertainty. Gold futures were up today and it's only a matter of time when oil is creaching back towards $90. When the next rally comes, they should perform pretty well. Plus, my positions in these are significantly lower than my short positions.

Tomorrow is a critical day. We have seen a lot of resistance at around 7800. If we punch through that bottom tomorrow, watch out. However, being in this fragile state, with a bailout announcement or some positive news, we could see a pretty strong bear market rally. It will take something pretty significant though, I would think. Which ever way we turn, expect some serious volatility and strong moves in whatever direction we're headed. Remember, this is options week, which usually entails some manipulation, so we could see some interesting moves before Friday. Either way, I believe FXP should be at $100 shortly, as China is sure to be dragged down with us in our bad news. If we do indeed rally strong Thursday or Friday, I will look to get out of most of my options and putting them right into EEV.

I hope everyone survived today and that your bleeding green. No one can be 100% right in this market. If you are, give me your contact information. Thanks for the insights with your comments. Happy Trading and have a good night.

10 comments:

  1. Anonymous Says:

    Hi

    I'm a new trader in the market for the first time. I've been watching the short term very closely, though I really can't make much out of the numbers. With the entire economy looking like a bust, what advice can you give a newbie investor?

    I've made many mistakes already such as picking up SKF @ 190 and then selling it prematurely at 202. I didn't anticipate another bear rally towards the end of the day and picked up UYG at $5, which is obviously not looking favorable.

    The losses are already cutting deep, and for a newbie that is trying to learn some tricks, do you think holding on and praying for a bull rally tomorrow morning is out of the question? I've picked up some reading material about options but am not confident enough to make any calls there yet..

  2. Anonymous Says:

    To add to that, I jumped in head first buying some google and bidu. They are both respectable companies and I do expect them to make it through the next couple of years, but is holding on large-cap stocks favorable in the short term? I keep wanting to sell them both and hold on to the liquidity to catch some momentum trades when the market reaches a new low and starts bouncing back.

    Anyway, appreciate any advice you have :)

  3. Finance Fanatic Says:

    It's a good question, and if I had the answer to it, I would be a billionaire tomorrow. But here are my thoughts on the matter. I don't consider it a far fetch to believe we could rally tomorrow or Friday. In fact, I believe we will. But it's tough to say with all the negative news we continue to swim in. That is why for me, I try to keep my bulk in these inverse ETFs (FXP, SRS, EEV, etc), while hedging that with some long options.

    I think UYG at $5 is a great buy. I don't know about the short term, but this next rally we get, it should take a pretty strong bounce upwards. SKF and SRS are getting really expensive and I don't plan on buying them anymore until they are down below $150 again. The best thing to do in this market (that's been working for me) is to be patient, and wait until either the opening or 5-10 minutes before close to make your move. There is a lot of volatility right now.

  4. Finance Fanatic Says:

    I have strayed from Large Cap stocks in the short term, due to mass profit taking from all industries, especially those that still are over $200. I am, however, picking up Bidu (and goog in the future) for my IRA account. I think they're great buys for the long haul.

  5. Bruce Says:

    Hi Anon,
    I too am VERY new to investing. Before mid-October I had never invested in anything other than an IRA mutual fund & held on for years. Finally had enough. What has been working for me, and allowing me to sleep at night is to be conservative. I can't really stomach these big swings and leaving my money in overnight is rough and seems to go badly for me. I read this Blog, CNBC, marketwatch and anything else I can find, try to determine a general direction for the market for the day, then pick an ETF, either short or long, that matches the days mood. I have been using FXP a lot lately. If I try to pick an individual stock, I tend to choose badly and lose.

    Unlike FF, I try to avoid the first hour and the last hour of trading. Too volatile for my taste and the market seems to want to work against me when it is swinging fast, (or I just haven't learned to harness it). Anyway, once the market has settled into something of a 'groove' I try to pick the trough of a wave and buy as big as I can afford. Then it is a waiting game. Sometimes I pick well and I ride it up until I feel it is peaking and sell. Done in 5-20 minutes and out. Sometimes I pick badly and either have to bail out and try again or spend the rest of the day trying to reach a higher peak than I bought in.
    My goal is 1% each day- once I reach that, I shut off my computer. I know not awe inspiring, but it has been working for me. If I get greedy I tend to get hit. The more I stick to this strategy, the better I do.
    So far I am up 40% in 3 weeks. Again, I am sure there are many that are up hundreds of percent, but then again there are also many who are down 50% or more so I'll take it.

    Again- I am VERY new, have only been trading in one kind of market cycle and only for a few days- so take this with a BIG grain of salt.

  6. John C Says:

    Which online stock broker are you guys using??? Whats the opinion on the oil companies and google?

  7. theUnseen Says:

    was wondering FF, if you would have time to chat with me, if you can, please throw me an e-mail at pengliu12@gmail.com. newbie investor here and would like to discuss some thoughts.

  8. Finance Fanatic Says:

    Good Advice Bruce. As you can see, you can play this type of market several different ways and find success. The best thing to do is find what works for you and your schedule, and what trading patterns your comfortable with. There are some great resources out there to help in your decision. Feel free to post questions on here, there are a lot of knowledgeable traders that are tracking this blog. And thanks for your input Bruce.

    TheUnseen, feel free to email me at crashmarketstocks@gmail.com. I will try to answer your questions as quickly as I can. Thanks

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  10. Xiang Nan Says:

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