Financials Dump the Market so Yesterday Was a Big Headfake

Worries about the Financial sector gapped the market down pretty severely this morning. MER stated that Regional Banks were in capitulation mode, LEH predicted losses will continue to grow at FRE and FNM, and Moody's downgraded their ratings on Bond Insurers. The result has been a really red morning in the markets. The SPX finally broke support at 1,331. This is where I point back to my grumblings yesterday about "Smart" Money and "Dumb" Money, and how I thought that Dumb Money was short-covering and bargain chasing a story that was never really there. Talk about those "Mavericks" missing the Big Picture. I guess they felt "the need, the need for speed" again, but it looks like Smart Money just deflated their vollyball. I kept harping on the fact that price fixing oil in China was NOT NEWS, which is why I refused to load up on calls. Well.....one big giant head fake later and the Dumb Money just got their head handed to them on a silver platter.

I stopped my two partial call positions on CTSH and STLD. I also sold my SPY puts into the gap down and then bought back a different strike a few minutes later. I also bought QQQQ puts, and I took a very small put position on CLF. I'm diversifying over to August options, although I have July and August puts on SPY and the Q's because I'm going to sell the July's later today.

8:30 am MT: here are the final numbers for the trades: STLD was a .46 cent loss on a half-sized position, so minimal damage. CTSH was a 1.08 loss on a half-sized position, which was nastier, so I'm glad I nibbled instead of going all in on yesterday's market action, it saved my account a lot more damage. The SPY put was a .27 cent profit, or 8% gain on a full sized position (can you see why I kept the hedge.....). I did a quick put trade on the Q's for a .15 cent profit, or 6% gain on a full sized position. Then I let SPY and QQQQ bounce a little and bought back in to July and August puts.

8:38 am MT: I sold the July put position on the Q's for a .20 cent profit, or 7.5% gain on a full sized position. I'm going to hold the August puts into next week. I also just picked up .40 cents in profit on the CLF position after selling. If it bounces a little intra-day then I will re-enter the position.

8:48 am MT: I sold the July put position on SPY for a .17 cent profit, or 5% gain on a full sized position. I'm going to hold the August puts until at least later in the day, and perhaps next week. I'm satisfied with the day of trading so far and I'm looking for new put ideas.

Here are some put ideas for today (you should wait for bounces intra-day on the stocks that are getting absolutely hammered, like SOHU):

SOHU, WYNN, MER, QQQQ, ADSK, KLAC, WFR, CLF, CELG, EEM, BBY, RTH, IWM

9:20 am MT: I bought some smaller put positions on IWM, EEM, and CLF. I will sell the EEM puts later in the day if it drops back down to 138. I'm going to go kick back for a little while and let this all settle in my brain. We have options expiration today so I expect quite a bit of gyrating between now and the close. If we sell off into the close and make new market lows intra-day, we'll be hearing the lamenting and groaning by traders on the floors of the exchanges all night long.....But as a speculator, I think the odds of just that happening are going to be greater than 50%. It doesn't guarantee that the market makes new intra-day lows today, but that's what I think has a good chance of happening. As always, we shall see.....

12:55 pm MT: The market made new lows intra-day just as I suspected. About an hour ago I sold the IWM and EEM puts for nice profits for a few hours of work. Now, isn't it interesting that the biggest selling is coming from Tech and specifically Big Tech? How many of you caught that right out of the gate today. We have our second Bearish Kicking Pattern in June on the Naz. If you ever wondered how Smart Money beats up on Dumb Money, there it is. I'll get into the analysis a little more later when I have some time.

I just sold half the CLF puts. I also sold a little of the August SPY and QQQQ puts. Here are the numbers: The IWM put was a .33 cent profit, or 9% gain intra-day. The EEM put was a .40 cent profit, or 6.5% gain intra-day. The CLF put (including the .40 cents from the earlier trades) is a 1.65 profit, or 19% gain intra-day, and I'm still holding half the position. The SPY put is a .55 cent profit, or 12% gain intra-day, and I'm still holding 3/4 of the position. The Q's put is a .27 cent profit, or 11% gain intra-day, and I'm still holding 3/4 of the position.

I think I've got all the trades up to date. I was very busy on the phones and I really had to stretch myself to multi-task. It's one of the toughest things that I have to do - talking and answering questions about some random thing while I'm trading and analyzing the market with the other half of my brain. It's even tougher to try and get the posts written while I'm doing all that. I'm working hard on coming up with a plan where I can focus completely and post in a timely manner more consistently.

One other quick note: I have netted another $9,000 in profits with my trading since last Friday in the Papermoney account. This pushes my total profits on the year to over 78.5k after starting with a 50k account size equivalency in January. That is a 157% growth rate of the account in 5 1/2 months in tough market conditions. For those of you following me regularly since January, you've seen it all right here in front of you.

Looking forward towards Monday, if the SPX drops into the 1,310 area early in the day I will probably exit all three of my remaining put positions. I won't be surprised to see a bounce by mid-day Monday, or Tuesday at the latest. If we get a bounce late Monday or sometime on Tuesday then look for Wednesday to be the catalyst day for news to carry the market further in the bounce or to roll it over. We have a lot of reports due out that day, with Durable Orders and the FOMC Policy Statement probably getting the most attention.