9:00am (EST) 

We mentioned yesterday we were excited about the market going lower because A) it proved our homework back in August was about to pay off and B) our subscribers have made a wheelbarrow full of money over the past few weeks following our option recommendations.  Of course, 2011 has been a hard market to trade considering all the major events that have taken place and the recent 8-week trading range has been just as much of a headache.  However, one thing our students know is that the longer a market, or stock, stays in at trading range the bigger the breakout or breakdown becomes. 

We knew going into last week the bulls had a lot of work to do and once they failed to clear short-term resistance, we knew the trading range was about to crack – to the downside.  We also got a hard date on when Greece’s fate would be determined which also lead us to believe there would be more anxiety as push comes to shove.  Yesterday’s technical damage was exactly what we wanted to see, as the decline pushed the major averages to new 52-week closing lows.

Even good news here at home continues to take a back seat to Europe’s woes, as Greece admitted that it does not expect to hit its deficit target.  Also weighing on the market was the data from overseas which pointed to a slowdown in manufacturing. 

Bankruptcy rumors spooked Wall Street and Airlines stocks as AMR (AMR, $1.98, down $0.98) fell 33% on water-cooler talk they might need to higher some Chapter 11 lawyers.  In the company’s defense, they did state they were not seeking a prepackaged bankruptcy but often times where there’s smoke, there’s fire.  United Continental Holdings (UAL, $17.11, down $2.27) gave back 12% while JetBlue Airways (JBLU, $3.49, down $0.60) tumbled 15%.  We saw some cracks in the sector back in August but we failed to give our UAL put option trade enough time to take advantage of yesterday’s debacle. 

Elsewhere, Financial stocks took a beating as they suffered the worst loss of any major sector by falling 4.5%.  Bank of America (BAC, $5.53, down $0.59), Morgan Stanley (MS, $12.47, down $1.04), Goldman Sachs (GS, $90.08, down $4.47) and JPMorgan Chase (JPM, $28.65, down $1.47) all hit new bottoms and could go even lower. 

We have been warning our readers of Goldman’s troubles and we have said BAC was going to $5 but neither looks like a buy quite yet.  In fact, we now have a triple-digit profit (+145%) in our Goldman Sachs put option from last week and all we have to do now is protect our gains.  In pre-market action, Golden Slacks is trading in the $80’s. 

As far as the market, let’s go over the numbers and more downside targets because it’s going to get worse…    

The Dow dropped 258 points, or 2.4%, and ended at 10,655.  There was strong support at 10,800  (which is now resistance) but this level acted like a wet paper towel trying to stop a cannonball…


If you are not a subscriber but would like to read more and check our chart work for the indexes and our current trades, please click here.  Futures are pointing towards another nasty open which is good news for us.  Dow futures are lower by 96 points to 10,443 while the S&P futures are off by 11 points to 1,075.  Nasdaq 100 futures are down 16 points to 2,050.  We have quite a few trades that are up triple-digits so we have set HARD STOPS to protect our profits.  However, with the futures tanking, it looks like we could see continued gains for our trades.