Market Drops Nearly 350 Points

It was a rough day for the market as all three indexes posted huge losses after a flurry of bad economic news. The retail report was lousy although Wal-Mart (WMT, $59.78, down $0.01) held its own. The stock hit a high of $60.89 and was challenging its 52-week high of $61 but faded as the market grew weaker. Jobless claims rose to an adjusted 444,000, up 15,000 from the previous week. Wall Street had expected a drop to 420,000. Add it all up and it spelled disaster for the market.

The Dow finished the session 345 points lower to 11,188, a decline of 3%. The Dow is officially down 328 for the week but is 643 points off its high of 11,831 on Tuesday. I mentioned this level as a brick wall and that it was. The Nasdaq fell even harder on a percentage basis (3.2) dropping 75 points to 2,259. The S&P 500 dropped 38 to 1,237.

The market may be getting ready to call “uncle” if Friday’s monthly unemployment numbers come in higher than expected. Wall Street is expecting an elimination of 75,000 jobs in August which means a higher unemployment rate. This will be the eighth straight month of job cuts if so. The unemployment rate is expected to come in at 5.8%.

This will likely be the biggest impact for tomorrow’s trading and any hurricane news could also sway the market. As far as any option positions, there is a tremendous amount of put buying out there and I would feel safer shorting the market over the weekend than going long.

Note: The PowerShares QQQ Trust (QQQQ, $43.66, down $1.46) mirrors the Nasdaq and the technology sector could be setting up for a major decline. There was plenty of action in the September 45 puts (QQQUS, $1.73, up $0.86) which doubled today with the 3% decline in the Nasdaq. They opened at $1.07. The October 45 puts (QQQVS, $2.27, up $0.74) opened at $1.66. You could feel the tone of the market this morning and these option plays were huge winners for the traders who smelled blood in the streets.

Rick Rouse
Rick@OptionsMentoring.com

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