Play Editor's Note: The play list is looking pretty light these days. The markets remain very volatile and if you're actually trying to trade these markets it's like playing tag on a multi-lane freeway. Sooner or later you're going to get crushed by a passing truck. We should be taking our cues from market veterans who have been trading the market for decades. Right now the pros are cutting back. They are trading less often, they're trading smaller positions, and the best advice has been to just sit out this market until we see something that resembles normalcy.
If you forced me to pick a short-term direction for this market I'd pick down. The Friday bounce followed by Monday's drop is a classic bearish reversal pattern. Nothing is likely to happen on the government's bailout plan until next week. That means that financials could lead the market lower until next week. After the bell it was announced that Capital One Financial (COF) was going to sell another large chunk of stock to raise capital. Individual traders can't short COF but the company can dilute their own stock price. This could start a huge run by other financial companies trying to raise capital by selling more stock while their shares can't be shorted. Currently the short-sale ban is set to end in early October unless the SEC extends it.
I was about to add bearish plays in the financials but then news crossed the wire that Warren Buffett's Berkshire was investing $5 billion into Goldman Sachs and shares of GS and the financial sector in general were spiking higher after hours. I decided against new plays tonight.
If you are feeling brave you could look for tomorrow's bounce in financials to fail and then open bearish positions on the XLF or the IYF. If you think financials will bounce then consider bullish positions in something like RJF, which actually looks poised to rebound higher.
New Long Plays
New Short Plays