The market managed to do a little something on Wednesday as Wall Street enjoyed the holiday and looks forward to 2009. After a slow start the Dow managed to pull out a gain of nearly 50 points on the strength of the financial stocks. The Dow’s close of 8468 represented the end of a five-day losing streak that started when the index touched 9000.

As we have witnessed over the last month, the Dow seems stuck in a trading range of 8000-9000 and we have done well trading within this range. Matter of fact, we have done well all year as we have nailed a lot of trades. I have been harping on the fact that the Dow can’t hold 9000 but at the same time the index has held above 8000.

On November 21, the Dow hit a low of 7400 while the Volatility Index (^VIX, 44.21, down 0.81) had soared to a high of 80. This was the day the bailout package had originally gotten squashed only to have it revived a few days later with an estimated $800 billion price tag. Although it’s hard to say if this was the “real” bottom, it has provided temporary support if nothing else.

The VIX has fallen roughly in half while the Dow has only managed to gain 1000 points off its low. Obviously, this is why the they call it the volatility index and with trading volume slowing down, the market has stayed in this trading pattern. This has caused the VIX to stabilize as well.

And we should remain this way for the rest of the year unless we get some type of major announcements. However, what will January bring us? There will be fourth quarter earnings due out, a new president will take office, and companies will try and give a clear picture of what 2009 will hold for them. Earnings will be important but Obama will be the wild card.

Oil and the dollar will also be factors but the market will need plenty of good news if it expects to get off to a good start. Many traders will be glad when 2008 is in the books as there were a ton of investors that got swallowed by the market… trying to go both long or short.

With the way the “new” market has become it is imperative that you watch your positions on a daily basis. Check your quotes three, four, or five times a day if you have to. We were successful for calling a lot of right moves because we watched (and blogged) about the market like a hawk.

If you aren’t educated about options and how they work, then you are swimming against the current. With pensions funds vanishing and 401K’s getting wrecked, why wouldn’t you want to manage your own retirement account? That’s what we teach here. We teach you how to manage a portfolio where your results are based on what you do. I like those odds and I’ve liked them ever since I dumped my broker back in the 90’s.

As you look towards 2009, ask yourself where you want your portfolio to be. Take the time to learn the market and how options work. Start slow if you are new. Eventually you will get there.

I’m working on a 2008 year-in-review blog for next week so my entries will be light as we wind down the year. I’ll try and cover all of the jaw-dropping events that took place and I’ll review how many of our option trades fared for 2008.

Look for a so-so day on Wall Street. Most of the market veterans took the day off and just made it a long weekend.

Rick Rouse
Rick@OptionsMentoring.com

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