Moody's Crumples the Market

Pre-market futures are down sharply after Moody's changed their ratings outlooks to "we hate the banks" on several companies this morning. JPM, WFC, and BAC are all either downgraded or under review for downgrades. So nice of Moody's to come out with their "negative" ratings after most of the banks are already penny stocks.....

Yesterday I speculated that a Weekly Jobless Claims number under -700k would give the market a boost, and that's exactly what happened. The report showed -639k vs. -650k estimated. Pre-market futures immediately jumped on the report, which is helping stem the horror a little. If Moody's hadn't destroyed the market, the Weekly Jobless number would actually have caused a gap up this morning.....so the volatility continues.....

Here is a chart of the SPX:
(click on image to enlarge)

Here is a chart of the Dow:
(click on image to enlarge)

The SPX is set to gap open at the lows from Tuesday, which means the pause and bounce price action is likely over. The Dow is also set to gap down at the lows from two days ago. The price action out of the gate will be critical. If the Bulls can't bring the market back up sharply in the first hour or two, and rather we see a weak wiggle back or even some selling, then the Dow will remain at risk for a drop to the 6,500 area. Moody's really messed things up this morning (although they are just doing what they think is their job). The charts were pretty easy to read, with fairly narrow ranges of doubt until the Moody's mess. Now there are wider areas of probability to deal with. The drop dead line for puts (and a continuation of the bounce that was started yesterday) will be a move back above 725 on the SPX, and a move above 7,000 on the Dow (which are possible, but a much lower probability now than yesterday). Any move below the Tuesday lows will open the door to a further drop, with the Dow 6,500 being a decent target.

As if I need to remind anyone, you may want to keep directional option trades to intra-day swings until the price action clears itself up. The market could still take a last leg down to the 6,500 area on the Dow, or this could all be a violent headfake because of the Moody's - "Market is Oversold" crosscurrent. I'm not down on Moody's at all, but today was going to be a really easy trade, especially with the Weekly Jobless Claims boost I was looking for, and now things just got choppy and potentially nasty. I will have to look at puts through the prism of a fairly oversold market short term, which I don't like.....so I will be very nimble today even though it looks like the market is headed to new lows.

12:20 pm MT: Intra-day Update: There's not much more to say about today other than playing puts has been great, but the market imploding is not so great.

Here is a current 5m chart of the Dow:
(click on image to enlarge)

You can see the Dow is about to fade into the 6,500's just as I speculated it might after breaking Tuesday's lows. There were a couple of nice Bear Flags on the 5m charts early in the day which led to nice put trades. From here, I speculate the Bulls won't mount a serious comeback. The may try to wiggle it back in the next hour, but the Bears will probably be ready to sell again in the last 15m - 30m of the day. After the initial "Moody's Dump" (insert Moody Market joke here), the market has just continued to fade away. Locking profits on some puts right now is a good idea, as is leaving some there to see if we get a last leg down into the 6,500's. The intra-day drop dead for puts right now is 6,700. Any move above 6,700 and I would want to be out of any puts I had left.