Play Editor's Note: Isn't it amazing at how much the short-sale ban on financials has "protected" the financial sector. The ban was enacted on option expiration Friday in September and the financials screamed higher on the news. From the Thursday, September 18th close the XLF is down 20%. From the Friday, September 19th close the XLF is down almost 29% and sitting at new all-time lows. One argument is how bad would the selling have been without the ban? Currently the ban is due to expire midnight tomorrow (Wednesday) and some have suggested that financials were down sharply today as investors exited ahead of the ban expiration.
The Dow Jones Industrial Average has given up almost 1,400 points in the last four days. The S&P 500 is down more than 14% in the last four days. The NASDAQ Composite is down almost 16% in the last five days. These numbers are a lot worse if you look at the last seven weeks. The point I want to make is that we're severely oversold and way overdue for some sort of relief (bear-market) rally. This is probably not the time to be opening new short positions - at least not with the VIX over 50.
I did consider adding some sort of straddle or strangle play on the Diamonds (DIA), the S&P 500 through the SPY, or even the Russell 2000 with the IWM but with the VIX this high the November options were very expensive. The numbers didn't add up to make it a worthwhile trade. Even if we got a 1,000 point bounce in the DJIA we could still lose money on a strangle. Unless you were willing to buy October options but Octobers expire in eight trading days.
Tonight's watch list has a few selected stocks where I posed the question, "what if the selling keeps going from here... where would these stocks find support?" These would be support levels where I'd be tempted to buy these stocks (actually calls on these stocks) but with tight stop losses on the stock.
IBM: IBM has already closed under its January 2008 lows. The next level of potential support looks like the $90.00 region.
RIMM: Shares of RIMM just closed under their 200-weekly moving average. The next level of support looks like the $50-48 zone. Beyond that it would probably be the $40 level.
BNI: This railroad stock is already testing support near $80.00. If it keeps going the next level of support appears to be the $75-74 zone.
LMT: This defense stock has dropped very close to support in the $98.00-97.50 region. If it breaks $97.50 the next levels of possible support appear to be $93.00 and then $90.00.
AAPL: It's amazing but AAPL has been in free-fall mode for several weeks straight. The stock has blown past support at $100 and now $90. The next level of possible support looks like the $83.00 region and then past that maybe the $76-75 zone.