Drop and Pop Part IV

Financials and Oil, the negative theme continues.....Speculation is rising that FRE and FNM may have to be bailed out by the government. Pre-market futures are down considerably on the news. Don't be surprised by some kind of announcement or comment out of the White House or from the Fed today concerning the two biggest providers of financing for home loans in the U.S. In addition, Oil futures rose over $5 per barrel to new record highs above $146 as speculators piled on more "war premium" due to the Photoshop-enhanced Iranian missile test. The concern is that Israel may launch some type of preemptive defensive attack. GE's earnings were in-line with expectations, but the company is being largely ignored this morning.....

The market looks like it will gap down significantly at the open. It will be important to give the gap a little time, perhaps even an hour or two for traders to focus on GE's earnings, in order to make sure we don't get another Drop and Pop. It may take a little while this morning for traders to decide how they want to handle the news, and see if anyone in the building wants to focus on the GE earnings and whether or not they are good or bad. Also, we are at risk for a White House or Fed news bogey at any time today. So if you play puts and you see a "news flash" about some pending announcement from the government, you will probably want to exit half your puts immediately and then see how the market reacts to whatever the news is.

7:31 am MT: the Naz gapped down the most of the major indexes. The Naz is still above yesterday's lows, so I'm not going to play a put hedge yet, and I'm mindful of another headfake. I don't think the bulls will step in, if they do at all, until we have gone to new short-term lows.

I sold the CHK calls right at the open on the huge gap up. I made a $2.10 profit, or 39% gain for the trade from one minute before the close yesterday to the first minute of the open today.

7:40 am MT: right on cue the market indexes went through the short term supports and within a couple of minutes bounced. Now the question becomes whether it's a pause in an ugly sell-off day, or a headfake that leads to another bounce back.....toss a coin because that's what the odds are to me. I will let this shake and bake and kick and scream for awhile before I decide whether or not I'm going to trade it or not.

I don't want to get sucked in too deep inside of the chop and slop by watching every tick of the charts this morning, I'm going to give it some time to gyrate around or sell. My suggestion for those of you playing directional puts is to be somewhat nimble. There are some good plays out there, so lock a little as the day goes on. If things continue to sell off into a "Black Friday" then ride with it. I speculate that as we get closer to the end of trading today that many bulls and bears will want to clean up positions ahead of the weekend.

11:15 am MT: The market continues to fade away, but every new low is met with some buying/short covering. However, the general move is down. We did get a government comment like I expected, and the comment was that the government is not expecting to take over FRE and FNM. Oil prices also continued upward into the 147's for a little while. All the negative news is throwing a damper on a decent earnings report from GE.

1:00 pm MT: Well.....I said watch for the pop.....We all know the drill by now.....

By the way, this time the comment didn't come from the White House Cabinet, it came from Benny and the Feds. So what I said this morning about getting the comments, well, we got comments from both places. Anyway, Benny said that the Fed discount window would be open for FRE and FNM.

You know, I really need to become a CEO of a major Financial institution.....I don't even have to be competent and I'm almost guaranteed a soft-landing.....Once again, the Fed is doing the right thing in the big picture to stabilize the overall Financial sector, but wow, how nice for those Financial companies.....

1:15 pm MT: I commented yesterday about how the bears won't want to be short and the bulls won't want to be long ahead of the weekend. So the market is continuing to slosh back and forth in wild gyrations, but the general move late in the day is a bounce back. The bulls and bears are tossing stocks back and forth at each other like their playing with a hot potato....."here, you take it! No, you take it! No, you take it! I don't want it, you take it! AAHHHHhhhhh, you're killin' me, you take it! I can't stand it anymore, you take it! - No, you take it, oooohhhh, I'm dyin' here, oooohhhhhh!".....

It's like watching Flaming Dodgeball in the Pit of Despair with acid-filled balls.....

2:25 pm MT: Market Wrap: It looks like the dust is finally settling.....The market finished well off it's lows again and the Naz is churning sideways short term. I really do wonder if the shorts will eventually wear out with all these Drop and Pops. We have a big week of earnings ahead of us next week. Traders have priced in a view of earnings for most non-Energy and Commodity based stocks that ranges between horrible and catastrophic. So if we start seeing a lot of earnings in the "bad sectors" next week that are less than catastrophic, and maybe even slightly less than horrible, then those screams you hear will probably be the shorts running on fire to jump into the ocean. It won't change the IT trend, but it could set off some serious short-term short covering.

If, however, the earnings from the "bad sectors" come in catastrophic, then the market will continue to chop and gyrate, and the Dow might actually sell off down to the 50% retracement of the 5-year bull market, which is at 10,750.