Thursday, October 1, 2009

Don't Panic Yet...

Markets are beginning to fall, just as I thought they might. October can often be a fun month for Bears in the stock market and it never hurts to have some PUT positions established to take advantage of any significant downdrafts that might occur.

The market broke down yesterday but tried hard to get back to even. In the end, it couldn't hold positive territory. Today, the S&P is down 20 points to the 1037 level. A few weeks ago, we sold 1050 calls through the end of the year feeling that the 1050-1100 level is as high as we might go before running into a significant downtrend line. It's not surprising that the market should be weak. 10 year interest rates are down below 3.20% this morning and getting to 3%, also suggested a month ago, could be in the cards. Let's face it, only the bankers are making money these days, benefitting from the billions and trillions of tax payer dollars being funneled to them. Auto sales continue to be dismal, consumer confidence is dwindling, Nero whoops, I mean Obama, is fiddling in Copenhagen while the US economy burns. Is there any doubt that we could set new market lows?

But expect one last rally up next week. Remember the old, tried-and-true, three-period test. After a down week last week, and what looks like it could be a down week this week, watch for the markets to try to take out previous highs. If they can't, ummm, get ready for October to live up to its reputation.

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