Hell on Earth
Monday, January 21, 2008 at 09:25AM 
Prepare for the worst tomorrow....
LONDON (AP) -- European and Asian stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.
The U.K. benchmark FTSE-100 dropped 3.9 percent to 5,673.1; France's CAC-40 Index plunged 4.5 percent to 4,861.2, while Germany's slumped 5.35 percent to 6,922.7.
In Asia, India's benchmark stock index tumbled 7.4 percent, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent to 23,818.86, its biggest percentage drop since the Sept. 11, 2001, terror attacks.
As of now, index futures are getting crushed. These prices are pointing towards a drastically lower opening tomorrow, and I hope you are all ready for it. Here are a few quotes as of about noon eastern...
Mini Dow- 11586
Mini S&P- 1265
Mini NASDAQ- 1774
Mini Russell- 644
If prices continue lower after the open, it is likely trading might be halted. My Armageddon prediction has materialized...but now I am not so sure if I am ready for it.
None of this is a reason to panic. I fully expect my stock and call option positions to get the guillotine tomorrow. Nothing I can do about it now. However, the bright side is that I have been positioning my account for this breakdown for some time. Like I mentioned a few days ago, I am delta negative, and about 65% of my positions are bearish while 35% of them are bullish. I can't predict how it is going to look tomorrow, but you better believe I will be in the trenches trying to do what I can to make a few bucks, or pair back some losses.
Here is my game plan for tomorrow...
Note: This is subject to change without notice.
I am going to look to take profits on all my bearish positions tomorrow. I will reduce the number of contracts, if not close out entire positions.
Cut loose losing bullish positions at the open. Forget the headache of waiting for a certain time, or a certain price...I am selling. There is too much to lose if I don't.
Have a healthy lunch; likely sushi.
I am going to use the Mini S&P to ride the rallies and short the declines that will take place during the day. There will be some great waves to catch if you are disciplined.
Aside from that, no new positions will be opened until the dust settles. None.
The good news for you bulls is that this needs to happen in order for the market to go higher. No longer will we see the weak-kneed gains in the morning followed by big sell-off's each day. This time we get to see the big sell off up front in its glory, and hopefully some consolidation thereafter. However, make no mistake...don't bargain shop here. If you bargain shop, it will be the end of you. Don't listen to the analysts like Doug Kass telling you to buy bank stocks hand over fist here. Don't buy a damn thing except portfolio insurance and alcohol. Leave it to the professionals to catch the falling knives.
In the meantime, get your armor on and get ready to go to war.
References (2)
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Response: Futures Down 520
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Response: ftseAll about ftse.
Reader Comments (234)
Final Dow Futures Close Down 520 Points.S&P Down 59.75 and NQ Down 75.50.
Thats rough.
Berkshire
I beat Jeff to the punch! But he has a train wreck as a picture so he wins by default.
I was talking to someone in Shadowtrader about the futures being down so hard today. He said it's a cause for concern but that it potentially can be related to foreign investors hedging against the US market open tomorrow. I think hell's about to freeze over just like you suggested Jeff. It's not pretty at all. My Feb SPY butterfly is practically shot and I'm in 85% cash. I'll sit back and watch the rest of the week.
FYI, I kinda like Dougie Kass. Might be because he's near my uncle's place in WPB. You wouldn't catch me dead moving back to S. Florida though. St. Lucie's the farthest south I'll go. But anyways, is this enough armor?
http://www.andgor.com/AA%20AndGor%20Images/619_Black_Knight_1.jpg
Jeff, you said that no new positions will be opened until the dust settles. What does that mean for you? Until you feel like you are able to forecast Short-term market direction?
Hey Jeff.
What do you do first thing in the morning? Your very first click, the first thing you see, where you go from there, know what I mean?
There are so many sources of information, so many talkinmg heads, too much information available.
What are some of the sources you rely on? and what is it your looking for? do you have a routine? a process you always follow? I think it would be a great video idea. I would like to see what it is you do first thing every morning when you start looking at the markets.,
Jorge,
Hearing that people are in cash is music to my ears. Hopefully my "overly pessimistic" attitude towards the market has been heard, even though recently complained about.
Jeff,
There's no way in hell I'd trade in these conditions. I started trading toward mid June right before the credit bubble burst. I'm still afloat so I'm guessing that bodes well for a career in trading but even if I were 20 years experienced, I still wouldn't trade in this market. It's too easy to become hurt right now.
Jeremiah,
I open my account and start trading.
I don't listen to other peoples opinions, subscribe to any resources, etc.
Rather than interpret peoples awful predictions on the market, watch what the market does and react.
Krystal,
If we are in for the worst, which is what a lot of this action suggests...then you just don't try and go about your business like nothing is wrong here. The system is taking a major hit. Did you see that the Hang Seng hasn't been down like this since 9/11!
Jeff, gotcha. Like Jorge, I am in cash as well (heeding your sage warnings). I guess it's back to the old paper trading platform for me...
:)
Ok I follow what your saying, I recently dumped any and all subscriptions I had, They were just wrong to often.
Question about foreign and domestic markets, futures, etc. Is there a really neat site I can use to get all that data without having to jump from site to site?
Krystal,
At least you can say you've traded through this. Pay close attention to how prices swing and how traders react. Not just the indices, but bonds and commodities also.
Jeremiah,
If you watch CNBC, you can get them there...otherwise Yahoo, Bloomberg, Marketwatch, Google...all the major players have them.
Jeff, will do. Thanks!
oh duh. I may be over thinking this! thanks for the advice though, I noticed that I can watch most of those online, Im going to try that out.
In the meantime, I decided last thursday to stay in cash.. I decided to stay there during this next week. I want to see a good bounce before I jump back in. I dont feel to excited about boarding the titanic.
Jeff,
I had to break out the hair drier (not mine... I have none) to dry off my keyboard. I laughed so hard I cried. What a great post!
There is only one reason that I am in all cash except for 1 call (DE which bit my biscuits on Wed, Thur, and Fri when I was out of town... on another planet), and 2 puts.... oh... and POT. I will never give up my POT. It hit my support line at 9:45 this morning and has been moving back up steadily. Right now it is $5 off it's lows. And that reason (the one that I mentioned way back at the beginning of this paragraph) is you.
Thank you, thank you, thank you. And thank me, too. I actually listened to and heeded your advice. Together we're a smart cookie. Well, you're the cookie and I'm just the M&M sprinkles on top. All show, no dough. Anyway, I'm sitting on 30% gains for the year and (touch wood) holding. Tomorrow will be interesting... but purely from a spectator's standpoint.
Mere thanks are not enough. Catherine suggested hugs and kisses. Firm handshakes will have to do.
Jeff,
Whats the chance of jumping on the bandwagon for a little downside action first thing in the morning? Too late for that? I'm looking to pick up a few quick bucks without getting burned.....
Sam
Jeff
Do we exit GLD, also?
I'm holding shares and nervious.
Jeff,
Thanks again. I got spanked on some bull longs last week. Lost a little bit ~ 2%. Killed all of my bull options. I am sitting on puts on COLM and JCP and stock positions on POT, COV and GLD, OH AND A TON OF CASH......
Thanks again. I am sure tomorrow will be hard on many.
Another note - When people say that Investools is too expensive I look to my Wife's and my 401(k)'s.
401(k)'S ALL CASH since mid-December. The market is down over 8% for the year not including tomorrow. - PHD course paid for in the money that the market would have taken from us - never to see again. When the market shows a clear bull sign again I will get back into something ther than cash in the 401 (k)'s.
Drives me nuts that I have no control where my company will let me invest my money..... Can only get Fidelity Mutual Funds. ARGGGGG I called to ask about sector ETF's ect...
Jeff,
Thanks for presenting your game plan. It's much appreciated in a market like this (kinda feels like we're driving off the cliff). Your thoughts concerning reducing bearish positions sound like the right move. I'm heavily delta negative right now, and will likely be largely in cash after tomorrow.
TD
Tom D,
So true. You know what they say... "If you think education is expensive, you should try ignorance."
Jeff:
Appreciate the heads up. I'm 90% cash and 75% of the 10% is bearish-also very small positions. I've been following your take on the market and will follow your lead. You've not ever lead us astray--and Yes-I take full responsibility for my trades/actions and results-I just appreciate having a trading Yoda (only taller) with us.
May the Force be with you (us)!
Battle Stations!!!
Thanks much
Robert
aka: CANI
Thanks for the great post and advice Jeff.
I'm totally in SHV right now, except for about a 5 contract straddle (slightly delta positive) on the SPY when the S&P was at 1325, and a 3 contract straddle on the diamonds 500 points ago :-)
We could easily hit 100 points lower than that on the sp (sp futures now down 60 points), and a 1000 points lower than when I entered the position on Friday, or if Ben cuts 100 basis points, we could go higher. Either way, I'll make money on the HUGE rise in volatility tomorrow.
You're right about watching bonds. The short-term notes are going through the roof tomorrow - see SHY, IEI, and IEF.
cheers!
Thanks for all your great teaching!
Clara,
I have talked to a couple of guys at work that have over $600,000- in their 401 (k)'s. I love the "It's ok I am in it for the long haul" line I get from them. If I was within 5 years of retirement and watched $50,000 go up in smoke I would be sick to my stomach.....
If nothing else, knowing when to cut your loss and what your pain threshhold is worth the cost of the course's
Jeff,
Great post. Now all we need is an intra meeting fed rate cut to really make things interesting. :-)
Jeff,
Hope everything went well for you in NY. Our account is positioned and ready to go. We've heeded your advice. No renegade trades, no catching falling knives and no playing chicken with my account. I am prescribing to the medicine called patience. Kim
Jeff- I would like to reiterate what Sammy asked, what's wrong with either selling calls or buying puts at the market price at market open to capture some one day gains?
Stan
Tom D,
POT is doing it's thing for me. Well... in purely mantric kind of way. Or Tantric.
Whatever.
It's still down today but the support line that I drew held on tight today. So far it's bounced back up to 122 which is over $6 off it's low this morning. I don't know what'll happen tomorrow, but so far it's down 3.20 today which is not too bad considering the bag of hammers that the TSX is immitating today.
Sammy,
I'd watch the first hour before making any moves. The market might bottom first thing and rally. Wait for a direction to take place then place your bets.
DrDirt,
Great question! I might sell off a few shares, but I will rely on my stop for this trade.
I mentioned at the beginning of the month that I am bullish on commodities. Not specifically gold and oil, but real commodities such as sugar, corn, wheat, soybeans, etc. As inflation rises, commodity prices follow suit.
I still think gold will rise over the next few months. But for those of you looking to take advantage of rising commodity prices, watch DBA. It is backed by commodity futures, as opposed to something like MOO; which is backed by the companies providing the service.
Invest less in the companies, more in the products.
Stan,
Unlimited risk!
That is the biggest problem...but don't let me influence a well thought out educated strategy. I am just giving a general warning.
Stan,
What happens if the market opens 700 points lower and then moves up all day because the talking heads bob up and down and try to convince everyone that this is actually a good thing and to ignore all the doom and gloom that we (the talking heads) have been spreading around, this past few weeks?
I agree that it could be a good idea, but I don't think that it's a good idea for people that are "looking to pick up a few quick bucks without getting burned....." I think I can smell the flesh burning from here.
Chris.
Tom D, I agree. It actually sounds like those guys are savers and not investors. There's a big difference, isn't there? :-)
Chris-
"I love the smell of napalm in the morning"
I'm going in with an extra layer of asbestos underwear.
Stan
Before getting too gutsy tomorrow, I try to keep in mind a quote that I read in the Market Wizards" book...."I know a lot of old traders and a lot of bold traders, but I don't know a single old and bold trader".
Now old a bald is totally different. You can be a successful old and bald trader. A certain Canadian pilot comes to mind!!
I think Jorge was right in the fact that global markets are shorting our economy right now, and that is what has pushed prices lower overnight...however don't forget that the Fed has the resources to keep things afloat, and I wouldn't be surprised to see some news tomorrow surface that gives the market some life support.
That is part of the reason I want to take profits ASAP tomorrow morning.
Jeff,
I wasn't right. I went into the Shadowtrader room at TOS saying "OMG Futures down 500 points. Run away!". gwptrader, apparently a really experienced person that folks look up to, suggested that futures are down most likely because of hedging but that it's too early to tell. In any event, seeing futures down 500 points still is scary. Even RedOption's newsletter was a bit startled by it.
However, I will ask that you forget about everything I just said above here and assume that I did come up with the shorted theory on my own ;)
WOW I have seen the light, The Holy Grail, I have experienced all that which is TOS. excuse me while I realize my lifes most triumphant moment. Does it get any better than this? please say No! Ha
Jeff, good to have you back and I expected this post from you today ... It's what you do ... watch our backs!
I went cash last Wednesday ... papertraded since ... The uncertainly and volatility of the daily swings was more than I wanted to digest ... I'll play some S&P tomorrow after we see what happens ... but I have a hunch (and that makes me no money) that the Fed will drop an interest rate decrease on us or infuse capital to the markets tomorrow prior to open ... They've done it before.
Thanks again Jeff ...
Jeff- as who probably has more experience than everyone else here on the board combined, have you ever seen the market open hundreds of points lower and go up from there? I think it will open low and continue lower, Yes, it may close higher after the Fed steps in or we may have a lock down for the day. I'm not sure that I have 'a well thought out educated strategy", I'm just looking to ride a wave without getting crushed in the process.
Stan
Jeremiah, orgasms are not allowed on the blog! :)
Although, Jeff did have a blogasm one time. But I think he faked it...
Thanks Jeff!
From your continued guidance/teachings, I sit 10% invested and am delta negative as well.
Last week I took BIG profits and intend to take BIGGER ones tomorrow.
Being in cash until the smoke clears is going to be my plan. Having a week or three to study new strategies (new to me) will be nice since I have only had time since Thanksgiving to manage my positions. This will be a welcomed break to further my education.
Cheers!
John
I heeded Jeffs advice .... and traded based on what the charts were telling me....and have made adjustments to my new 2008 rules. Though I have few postions (and one big CASH position) I am pretty much hoping the market plunges down HUGE. I'd like to see the S&P down to 1250ish and the NAS bottom out in the 2250 area. The DOW can suck wind for all I care. Then maybe the little bald mans nuts will have been squeezed to get his eyes to bulge so he can see what is going on here. Then maybe he will shut the fuck up and do something......will the Fed act??
Just my two cents!! (sorry for the colorful explicative, but those of you who know me...well, what can I say)
The few calls I have I may get out of if they hit my line in the sand, but I will look to nab profits off the remaining puts I have in play.
As for entering new trades tomorrow...no way. I will let the dust settle and then pounce when the charts tell me too. ..and even then it will be with precision and paying attention to minimizing losses....REE for sure.
Can't wait for the open!!!
I am out of my trading profolio, but I have a muni bond fund purchased Sept. I think I need to get out that too. Does anyone agree? OR do you think the bonds funds will not hit so hard.
Just like a plukking Marine. When all hell is going on around us, we can count on Raimo to hold head high and take action. Raimo good thing for the bald man you are not the one turning the vise.
I just wish I didn't have a day job. I am thinking the next 2 days will be a day traders paradise. Doesn't matter which way it goes...
Tom,
What is your criteria for exiting with your 401k?
PW,
Lose my job ;-( No way to roll out of the 401 k until your relationship with the company is severed. My brokerage account has done well enough that if I could use my 401 money I could pay the bills. Another couple of years growing the brokerage account and I can cut the cord......
Stupid question maybe, but what are the Minis mentioned above?
Thanks.
Jeff-
I'm only in 2 bearish postions right now and GLD. A week ago, I was in about 10 positions, mostly bearish and either took profits or cut losses when lines were crossed.
I couldn't get in to anything else b/c the trades were either too far gone or had broken down.
So, I'm OK for tomorrow....is this dumb luck, or are the price charts forecasting this event and I'm "getting it"?
Or not?
Thanks for all you do.
Lara
Jeff,
Thanks for clarifying why you would exit your bearish trades... I guess the impending gap down with the possibility of a Surprise fed response could lead to some pretty wild swings... so take profits early and protect the king!
Got it.
Raimo,
So can we change the saying... "it ain't over until the fat lady sings" to "it ain't over until the little bald man pukes"?
Jorge,
Anyone taking a short futures position as a hedge is still short a futures position.