Wheee – Down we go again!

We held our levels yesterday and we dared to remain bullish into the close and we’re going to be punished for it this morning as the IMF tells us there may be $4Tn in toxic bank debts out there, only $1.3Tn of which have been written off to date. That knocked 100 points off the pre-markets as of 7am and we’ll see where we actually open as the rumor of a statement from the IMF that won’t be released until the 21st is, so far,the only bearish news we have this morning… .

Our plan was to stay bullish this morning and move more bearish ahead of tonight’s earnings release. Yesterday’s close was so strong (fake, but strong) that we expected some follow-through back to test last week’s highs, less than a point away from yesterday’s close. Fortunately, we went bullish in my 2:52 Alert, 50 points below the close and I laid our a mattress plan for members in comments so, hopefully we can ride out this storm without too much damage. I will remind everyone here and now that FXP calls are a great play if the US markets pull back as the Hang Seng barely budged this morning but was rejected at 15,000 into the closeso a big US sell-off willalmost certainly sparkone in Asiatonight.

Now we’ll be watching yesterday’s lows ofDow 7,870, S&P 822, Nasdaq 1,580, NYSE 5,175 and Russell 440 but there is no change in our expectations of the inevitable retest oflast week’s support levels of Dow 7,636, S&P 805, Nas 1,525, NYSE 5,075 and Russell 420 once earnings get started. Our QIDs should serve us well today as should our short sale of FAZ puts as the financials pull back (sending FAZ higher) – all these were mentioned as the plays we were making in yesterday’s morningpost, so don’t act all surprised today that they’re paying off. Hedging with ultras is great fun when you use them sparingly but our bread and butter protection remains the DIA puts (also discussed yesterday morning). We covered those to go bullish into the close but it was by selling DIA $80 puts for $2.37 as we really felt 7,750 would hold atany rate and we wanted to collect the premiums while we can with just 8 trading days left to expiration. See comments for our adjustment strategy on this one!

We’ll be watching for that breakout
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