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. 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