Editor's Note:

Operation Twist? That's old news! The official announcement of the Federal Reserve's plan to sell their short-term bonds to buy long-term bonds was not greeted with enthusiasm by investors.

The market sold off hard. The S&P 500 index closed down -2.9%. Financials were crushed with the BKX and BIX banking indices down -5.4% and -4.7%, respectively. Downgrades for WFC and BAC did not help this sector today.

The small cap Russell 2000 index looks poised to breakdown from its consolidation pattern. Meanwhile the Dow Transportation index is nearing its August lows and a breakdown there would be very bearish indeed.

While stocks look ugly today I don't want to chase a -3% drop by buying puts right now. On the other hand we don't want to buy calls with the market poised for a potential breakdown. Aggressive traders may want to consider using a trigger below support on their favorite index as an entry point to launch bearish positions. We are not adding any new positions tonight.

Chart of the S&P 500 index:

Intraday Chart of the S&P 500 index:

Chart of the Russell 2000 (small cap) ETF (IWM):

- James