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.

CNBC's Cramer Says BUY on BA

As I mentioned yesterday, it appeared that there might have been heavy insider activity prior to BA's 787 Dreamliner delivery announcement. A friend has told me also that Forbes did a nice piece on BA. Finally, Cramer, who has a huge following on CNBC, said that BA is going to help lead the market higher.

Think I was saying this 8 or 10 points ago. Somehow, the late comers into the party make me uneasy. Even with the Cramer following in the game now, let's see if we can break above the neckline around the 53 level on the weekly basis. For extra protection, I'm adding to my long-term put position here but could get back in to the long side with any sell off.

Not that I think that BA is a bad play, on the contrary, I think that it is a great long-term move but the overall economy still spooks me and I want to make sure that I have a good balance to protect my downside.

While I can't deny the tremendous run in the markets, the fundamentals don't warrent price expansion. It's truly inflation as the world governments have pumped trillions of dollars into the system. Just as gold has been rising and everyone is fearful about a dollar collapse, stocks and oil have also risen. It is all created by the government and isn't real. It's inflation. Unfortunately, as our dollar gets trashed by the Fed's crazy 0% interest for banks, seniors are now being told that their Social Security checks will probably decrease in each of the next two years as there will be no Cost of Living Adjustments (COLA) in their social security benefits, however, prescription drug charges will be increased resulting in net decreases.

I still see food prices rise at a dizzying pace. My gasoline is more expensive, utility bills are set to skyrocket. I really pity those elderly on fixed budgets and those out of work. It's really going to get bad.

The stock market is oblivious to this though. Stocks are rising merely for dollar protection. No one is really winning in this. Investors are just keeping their heads above water in the world market.

As the realists have been saying, if and when the Fed does start pulling out the stimulus money, things are going to be as bad or worse than the credit crisis just passed. If such is true, I doubt that the Fed will ever pull the plug. The last crisis seems to be the direct result of rapidly rising interest rates just three years ago. Could they not predict how everyone would go bust with ratese suddenly rising from 1% to 5%? Any change in the status quo is surely going to collapse this house of cards.