Here we go again. The futures are down sharply this morning and it’s looking like the Dow is going to start the session with a triple digit loss. Last night, the the Senate added tax cuts and other deal sweeteners to the $700 billion rescue/bailout/whatever-you want-to-call-it plan and it passed easily. Now it’s up to a House vote on Friday.
This thing has more spin than a Tiger Woods bring-back. Once the package was approved at 9:30 PM Wednesday, futures immediately turned weaker. Really it was no surprise because the market is looking forward and it doesn’t care what is happening now. This doesn’t mean we won’t get a rally but the uncertainties are still there.
The real problem is credit and banks trusting one another again. The current crunch for credit means that auto-dealers can’t get their inventory on credit, or retailers can’t get their inventories for the fall season and on and on. The government says it is buying all of these mortgage-backed assets that are worth something in hopes of actually making a profit.
The fact that they are worth something and the talking heads are saying they are worth nothing has spooked the market. And it sucks. I say that because the general public is so nervous right now because the market is heading lower and everybody is pulling out for safer havens.
If the average investor knew how to play the market on the way down, then they wouldn’t panic. The fact that not a lot of investors know how to “short” the market or protect their assets is a problem. If you are one of those investors, don’t feel bad because it is hard sometimes for someone to picture in their head that if they buy a stock they want it to head lower. That is called “shorting” and people don’t ever try it.
With options, it is so much easier to see the difference because basically it means this. If you are bullish and you buy a call option, then you are hoping to “call” it away from them. If you are bearish and you buy a put option, you are hoping to “put” it to the other investor. When Enron was tanking and the employees who worked there knew it, most of them sat back and watched their portfolios evaporate. When the stock was in the $60’s, they could have bought cheap out-of-the-money put options and made a fortune.
I know I went down a beaten path but I am trying to tell you it is not a bad thing when the market is tanking. Be proactive and learn how to trade call and put options. Here at OptionsMentoring.com we have plenty of courses that take the emotion out of the market and generate you returns of 8%-10% a month! Not 5% in a year which is where most people are trying to move their money to.
I only say this because most people that ask me about the market seem worried and ask my opinion. I say “I love it” and they get this bewildered look on their face. That’s because I really don’t care which way the market is going, I trade the trends.