Editor's Note

The FOMC meets this week but the meltdown in the U.S. markets along with China and Japan suggests they will not hike rates again until June. Let's bet on that impact.


NEW BULLISH Plays

No new bullish plays


NEW BEARISH Plays

KRE - Regional Banking ETF

We were knocked out of the long position on this ETF with the drop below support this morning. The keywords in that sentence were "drop below support." Typically, when long-term support breaks we are looking at a continued decline that could be material.

Regional banks are tanking because of their loans to energy companies and to firms that service those energy companies. That includes restaurants, service stations, apparel stores, mom and pop businesses of all types that catered to the families of the 150,000 energy workers that have been laid off.

In addition, the U.S. manufacturing sector is in recession. With energy, manufacturing, transportation already in recession the odds are increasing that the country is going to be headed in that path as well.

Today, the Texas Manufacturing Outlook Survey for January fell from -20.1 to -34.6 and the lowest level since 2008. The outlook for the U.S. economy is not good and that means regional banks could be facing rising defaults.


I hate to go straight from a long position to a short position but in this case, the situation appears to be right. We entered the long position on a dip to support at $35. There was an immediate rebound but then that support failed today based on economic news.

I am recommending we short the KRE ETF with a tight stop at $36.45.

Short KRE at the open, currently $34.26, stop loss $36.45.

Optional:

Buy long March $33 put, currently $1.28, stop loss $36.45

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.




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