Option Investor
Market Updates

Brokerage Stocks getting hit

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This morning, we thought that brokerage stocks might have been a good place for traders to be looking for some downside action and so far we're not disappointed. I liked the group as a short not just for the "group" effect, but also because many of the stocks in this group are listed on the NYSE and often times don't gap down as far at the open like many NASDAQ stocks can. Subscribers know all too well that market makers in the NASDAQ were looking to remove as much risk for themselves at the open as possible and sometimes the NYSE specialist has enough "buy orders" left in his/her book near the open to prop things up and stocks aren't as susceptible to larger gaps down.

Securities Broker/Dealer Index (XBD.X) Chart - last seven months

The XBD.X got hit to the downside on Friday and the selling continues in this group today. The break below 472 now has the stock breaking below our "confirmation" level. This "confirmation" level is a charting technique we like to use just to make sure that we aren't getting a "head fake" by the MARKET on a break of upward trend. If traders now lower their stops for put plays in this index to that level, they shouldn't suffer a loss in put plays during market hours.

Always prepare for the worse!

With the NASDAQ Composite now trading at another 52-week low, I always like to prepare for the worse. The worse thing that could possibly happen to a bearish traders (short or put the market) would be for an unexpected Fed rate cut. The markets could possibly rally on such an announcement. With that in mind don't get "over short" and be lowering some stops here! If the markets continue the decline, traders should continue to make money to the downside and won't get stopped out. However, if you're lowering stops in your short/put positions, the MARKET will take you out with a profit or small loss.

Goldman Sachs (NYSE:GS) Chart - 60-minute interval

This morning in the our 09:30 EST Update on PremierMarkets.com we highlighted a bearish trade in shares of Goldman Sachs (NYSE:GS) if the stock traded above $86. The stock cooperated and actually gave some up-ticks to $86.50 before selling overcame the stock. We're following the trade in the "Hot List" and would now be lowering our stop to $85 to help remove risk from a bearish trade.

Selling is broad and indiscriminate

The bears are doing some "spring cleaning" this morning and just about everything except the kitchen sink is being let go. Bonds and gold/silver stocks are today's winners and this is just what we'd expect to be taking place in a broad market sell off. Past session winners like the Natural Gas Index (XNG.X) is seeing a lot of profit taking come out of it and this index is down 4%. While natural gas stocks have risen, the commodity itself had not been benefiting to the same degree as late and today's selling looks to be that of profit taking in the group.

Jeff Bailey
Senior Market Technician

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