So Far, So Bad.....

The Fed is throwing an $85b lifeline loan to AIG to prevent the insurance giant from going bankrupt. The Fed is cherry picking a little bit, deciding who lives and and who dies, but this is probably exactly what they have to do in order to stabilize the Financial sector mess just enough to prevent a collapse. In other Financial sector news (are we all getting tired of that line or what?), MS beat earnings expectations but is still trading down pre-market. It's still too early to tell whether traders like or dislike the earnings report.

I'm looking for the market to hold yesterday's bounce and build off it a little today. It may be that this recent wave of catastrophic news in Financials is beginning to attenuate, we shall see.....For now, as usual, tiptoe through the market minefield, don't go running around with a blindfold. I'm still taking small positions and nibbling here and there. It's still good money, but my risk management is critical to keeping me healthy right now.

3:00 pm MT: Market Wrap: I only nibbled very lightly on a few trades today. I picked up calls on KSS, KMB, STI, and COF. Before the morning was over I stopped all but KMB. The losses were only a few hundred dollars, but that wasn’t the issue for me. I wanted calls, I wanted Big Financial Institutions to put a bid under the market. But it doesn’t look like they are willing to come out of “every man for himself” mode and start thinking of the long-term health and survivability of the financial markets.

The Naz broke key support and had a huge dump today. The next support is still another 100 points below. I may be playing puts on the Q’s the rest of the week. The Dow and the SPX are clinging to the edge of the cliff by their toenails and very close to taking another big dump themselves. The chart damage today was close to catastrophic. It’s just so incredibly unfortunate to watch the self-interest, fear and greed rule the day. It is what it is.....

Resistance for the SPX is now 1,170 – 1,175 with another key resistance at 1,200. Resistance for the Dow is now 10,700 – 10,750 with another key resistance at around 10,900 – 11,100. Resistance for the Naz is now 2,150 – 2,160 with another key resistance at 2,200.

I could do a lot of re-capping of the news, but it’s all the same old same old in Financials. One new interesting tidbit is the SEC action against short-selling of stocks. Here is the report from Briefing: “Short-sellers will now have to deliver securities by the close of business on the settlement date. The SEC eliminated an option market-maker exception for the close-out agreement. In addition, short-sellers who deceive market participants are now committing a fraud.” The rule is designed to force traders and market makers to actually borrow shares used in short sales, or in other words to prohibit naked short selling. It also makes it a securities fraud when sellers deceive brokers about delivering borrowed shares to buyers. You know what I think? I think that all that yapping I’ve done this year about Hot Dog Hedge Fund managers and their greed, and their ignorance of the bigger picture is all coming home to roost. Remember, Hedgies are the biggest short sellers in the market, and Hedge Funds can be found everywhere from private individuals to Banks and Brokers trading departments. We’ve had a huge, huge explosion of Hedge Funds in the past 10 years as even major Financial Institutions and Major Funds of a variety of sorts all scrambled to take more advantage of shorting and making money on a dropping market. Well.....here we are.....I’m not one for too much government intervention, but this is a responsible rule designed to keep an orderly market and eliminate fraud, manipulation, and to an extent, greed. We have the best regulatory oversight in the world, and that’s critical for having confidence in the Financial markets.

As for tomorrow, and the rest of September, it’s hard to envision a scenario for wanting to get loaded up on calls. If the Big Financial Institutions won’t step in and hold the line and start making some amends for their greed and overspeculation, then the prevailing trend will stay down. And it will stay down to the point of some sort of catastrophic climax. The main thing that I’m concerned about with the collapsing of the market now versus the year 2000 – 2001 is that a Tech stock that was trading at $450.00 but never had positive earnings and goes bankrupt means a few lost jobs. But a Bank that was trading at $45.00 and goes bankrupt means a whole bunch of people lose their life’s savings. I don’t even like writing stuff like that. It really bothers me, but it needed to be said. This situation in the markets is at a critical, critical point. It needs to be corrected, and like I stated yesterday, it needs to start with the Big Money, the Big Financial Institutions that created a good portion of the mess in the first place. The government played a huge role in the mess with the irresponsible and politically motivated loosening of lending standards at Fannie and Freddie a number of years ago, but the government is getting to the point of being maxed out on what it can do. We really need the Financial Institutions to step up to the plate, and they SHOULD step up to the plate if for no other reason than the survivability of their own business, their own jobs and wealth and livelihood. Right now is the time for Banks and other Financial Institutions to get together and to get creative and get gutsy. Whatever it takes.....close to zero profit margins on all long term loans for awhile, freezing the 30-year Mortgage at 4.9%, working together instead of cutting each others throats, whatever it takes!

I will summarize all of this by saying that I will probably looking at puts. If you are a Retail trader, a little guy or gal, and you want to do anything right now, you have to favor puts. I certainly hope that the Big Financial Institutions make me wrong.....I don’t mind losing a little on puts if it means that I will be able to make a lot more money trading calls in the long run. But as always, I will focus on profitable trading, and that means puts as long as the trend is down.

Note: Here is an answer to a comment question on the VIX:

We're not even close to an all-time high on the VIX. "When it's high it's time to buy" (before the 5-year bull market) meant readings over 50. The Tech Wreck Bear Market ended after a VIX reading of 57, the VIX is currently at 36. We still haven't had a catastrophic blowoff.....