Market Takes Another Leg Down

Stock market futures are down pre-market as traders focus on the empty half of the glass. It appears that investors are having a melancholy moment as they contemplate the 470b in writedowns and credit losses worldwide amongst Financial institutions stemming from the subprime mortgage market. Bill Gross has predicted that the number may reach $1 trillion.....

As it is, the market is set for a soft open. I will probably be looking to play some puts for a little while intra-day, but I'm not looking for a strong momentum day to the downside. It may happen, so I will be ready if it does, but I'm looking for more of a softer, mushier day of trading ahead of the earnings reports due out tonight and tomorrow morning.

Here is the journal recap of my trading day:

7:45 am MT: The Market came out of the gate with a squish. I’m looking around, but I don’t see a lot. PRU looks interesting, and DHR may be trying to move. I decided to do a tiny nibble on PRU calls. Financials are making a little wiggle.

8:00 am MT: I also picked up a tiny nibble on LMT calls. The market this morning is doing what I thought it would so far, mush and squish. However, the longer it holds up, the better chance the PRU and LMT calls (or other areas) run up a little. So I’m tiptoeing around and doing a little here and there. Like I said, pretty much how I thought today would go. If the market breaks down through the three-day support I will probably do a quick put play on SPY and DIA. Until then.....I am sitting and watching. Also, PRU legged up a little more, so I nibbled on calls a little more.

8:10 am MT: I nibbled on some WHR calls. Traders may be turning it off the gap. I also picked up a little more of the LMT calls on the intra-day Hammer.

8:45 am MT: I sold most of the LMT calls into the extreme intra-day move for a .33 cent profit or 9% gain in less than an hour. I figure that I can get the calls cheaper in a few minutes.

9:10 am MT: I picked up the LMT calls again at a cheaper price. I also nibbled a little on some SPY and DIA puts. I am close to stopping out of the PRU calls, but it’s holding support for now.

9:15 am MT: I stopped the PRU calls for an .82 cent loss or 14% on a half-sized position.

9:50 am MT: I started scaling out of a little of the DIA and SPY puts. I locked about 4% - 5% profits so far on the puts. I took full sized positions, and I may add more back in on any pullbacks.

10:30 am MT: I added back into the DIA and SPY puts on the intra-day consolidation.

10:45 am MT: I scaled out of a little more of the DIA and SPY puts on the breakdown of the consolidation. I have some of the puts that I am just riding throughout the day for a normal short swing and I have some of the puts I’m getting in and out of a little faster to reduce my risk. I’m targeting 11,175 on the Dow and 1,240 – 1,242 on the SPX to exit most of the puts.

11:00 am MT: I have been busy scaling out of the DIA and SPY puts.

11:35 am MT: I finished selling all the DIA and SPY puts. Here are the tallies for the quick hits: DIA was a .27 cent profit or 7% gain on a full-sized position. SPY was a .30 cent profit or 7% gain on a full-sized position. Here are the tallies for the short swings: DIA was a .45 cent profit or 12% gain on a full-sized position. SPY was a .54 cent profit or 12% gain on a full-sized position. Here are my total profits on the day in dollars for closed positions: I made $1,557 on the DIA and SPY puts, I made $130 on the LMT calls, and I lost $410 on the PRU calls. The net profit is $1,277.00. I put the time stamps in as accurately as possible, but anyone who wants to check the trade entries and exits more closely in my Papermoney can ask me to show the trades and analysis in my Wednesday VC.

3:00 pm MT: Market Wrap: The SPX went through short term support at 1,250 and made it all the way down to the top end of my next support zone at 1,235. The Dow and the Naz had similar types of drops, with the Naz flopping down through the low end of its short term consolidation channel. It was a nice day for puts on the DIA and SPY. In fact, it’s been a nice two days of puts on the index ETF’s. Many of the sectors that saw the most short-covering last week were the sectors that sold off the hardest today: Banks, Brokers, Airlines, and Housing. The Financials were in the center of the storm after the FDIC shut down two more Regional Banks (the sixth and seventh failures this year). In addition, the IMF (International Monetary Fund) stated that it was their belief that the mortgage mess in Financials was going to reach $1 trillion in losses (hey, Bill Gross said the same thing.....). So Financials gave us a nice little news bogey to help the puts along today. I thought it was going to be a quiet-ish day unless we got a Financials or Oil news bogey. Well, we got the Financials news bogey.....If Earnings take us down another leg tomorrow, then I’ll do puts all over again.

The next support level on the SPX is 1,225, and then 1,215. After that it could be a round trip back to 1,200, we shall see.....The Dow has a support zone between 10,920 and 11,000. I would guess that a move down to 10,920 on the Dow would coincide with a move down on the SPX down to 1,215. The Naz has support at 2,250, and then minor support in the 2,225 – 2,230 area, with a more key support level at 2,192 – 2,197.

We have a lot of earnings to digest tonight and tomorrow. I wouldn’t mind a little wiggle out of the gate tomorrow to load up on SPY and DIA puts again. But watch the stocks with earnings that I mentioned from Saturday’s post as well, we could see some strong sector and stock movement in a few areas tomorrow, even if the overall market doesn’t move quite like it did today.