Reality Begins To Set In - Market Down Over 400 Points

Every day that goes by we are seeing America slowly realizing just how bad it may get the next year. Today, only 1 stock was positive in the Dow and it was GM, solely based on the expectation of a government bailout. And I still believe the worse is yet to come.

Today, Secretary Paulson had a press conference to tell the country they are "revamping" the way they're going to spend the $700 billion bailout funds. Instead of focusing on troubled mortgage assets, they're going to focus on consumer credit debt. So now it sounds like they want to bailout people's credit card debt so that credit card companies can start lending to the same people again. What a great plan. This will somehow "unfreeze" the lending markets again. It sounds like full circle to me.

Well, the market didn't respond to well to Paulson's address. Following his remarks, we saw the Dow plunge another 100 points (300 more by the end of the day). The point is, even with hedge funds liquidating, most traders are realizing that we probably have some bad days ahead. These current market trends and volatility we are seeing are frightening close to the trends we saw in the market leading up to Black Tuesday. It's days like these, I'm glad I'm short.

FXP fought a hard fought battle today. It opened up in the red as a response to China's relatively strong performance last night. However, today's raging storm of bad news eventually brought it back up, closing a bit above $82. This is very encouraging for me, considering China had a strong day yesterday. China showed slow retail sales growth for the last month, which should shake things up. Most likely, Asia will take a bath this evening in response to our own bath. I'm looking for FXP to take a strong pop tomorrow.

On a different note, I actually bought long today. That's right, long. GDX has been so beaten up, I picked up some January expiring options at $22. So this gives me plenty of time for Gold to get a bit of a bounce from its recent slaughtering. I felt the need to hold something long as a hedge. If we go red again tomorrow, I am looking to buy back into the .QAADB Apple option (being below $10). Apple in the $90 range is a pretty good short term buy for me. I am enjoying the gains from SRS, SDS, and QID as well. Those should continue to run strong as we test a new bottom in the coming weeks/months.

There is still debate whether or not GM will be bailed out. My guess is they will. I don't think the government wants to send this market down the 6000 range (although I'm not sure if I agree with the bailout). Oil is another one to watch. It continues to get slaughtered as demand keeps going down. However, OPEC is considering another "emergency meeting" to cut supply again. This usually does well to give a nice 10-15% bump in DIG. I would wait to see how this week plays out before buying it. But if DIG goes below $25, it's a buy in my book.

Tomorrow, should be another good day for me, unless we wake up with a surprise from the government. There is still a chance of some manipulation from hedge funds, Friday being the deadline. Keep in mind, we still have the doozy of an announcement Friday, when they announce US retail sales. Once again, keep your eye on China tonight, that usually gives a good preview of where to expect FXP for tomorrow. Happy Trading everyone, and we'll see you tomorrow. Feel free to drop some comments, I'd like to hear other's thoughts.


  1. Unknown Says:

    I wanted to say how much I have enjoyed your Blog. Thank you- Great stuff.
    Today I jumped in and out of FXP- the retail numbers made me nervous along with the Hedge fund wild card- I did OK, but I wish I had just stayed in. It is at 87 in aftermarket so I'll be watching China very closely tonight.
    Thanks again.

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