Traders Are Not Convinced

The market action has again become truly ugly and a bit panicky. Well maybe not so much as last October-November when the VIX hit 80. It is currently still hovering in the 50's which is very much above any sane levels. The government, headed by Obama and his harem of cronies, has done little to convince the markets that they know what the solutions are for what ails the financial system in the US. I, for one, am not at all ready to jump on the "save the economy at all costs" bandwagon. The further we go down this road, the deeper the trench we dig and the chances of ever escaping are becoming relatively slimmer and slimmer.

You can create a well functioning financial system like we have experienced for over a hundred years, but that does not mean it does not have limits that even a corrupt government cannot exploit. Ladies and gentlemen, the current government is destroying our financial system by throwing tons of debt at the problems which, by the way, we mostly created by a complete over-use of our debt system. And I am not letting the previous administrations of the hook. Especially Congress over the last decade has much to answer for. Of course they never will when the likes of Teddy K continuously get re-elected without so much as a second thought, you can see that things will never change.

You can compare this current mess with the current IRS abomination. Go ahead and be fearless and get yourself a copy of the tax code and waddle through it for a few hours. You will see a morass of misconstrued conundrums and illogical misconceptions beyond human belief. Our economy and the banking mess, complete with mis-trusted derivatives and the total mis-guidence of those million $$ CEO'S and the rest, have helped to create this blob of nincompoopiness beyond any rationality. What ever happened to KISS in this country? Certainly such systems as created by the punch-drunk Congress can be made to be simple and understandable as well as guarded against false Madoffathons intent on stealing every dollar in sight.

It is really funny that those who have made millions and billions over the last few decades by shystering the rest of us will hardly suffer more than the sting of a bee. It is the followers and believers who have and will continue to be fleeced and taken to the cleaners as well as flogged and beaten senseless. I am not saying that those who have earned their riches are not entitled to them, on the contrary. But it is those who take and take and then proceed to want to steal more that ruffle my feathers. And Obama, who wishes to save the world as well as save ourselves from ourselves, will be no great shakes in the end. Steering by the current course, we are headed toward a monstrous disaster of unmitigated proportions. Over the next few years we may go where no man has gone before and never return for many decades, if at all.

I hate to sound bleak and negative, but take a look a what has and is happening. There is simply little confidence in government to save anything at this point. In fact, the more we rely and expect the government to do the more will never be done. Simply, this economy is born of great business creation, large and small, and that is the only lasting salvation...let the markets take care of themselves, as they have for hundreds of years. Sure, there will be blood in the streets, but the quicker the better; for when the dust settles, we will have the makin's for a substantial period of growth and propriety. Let the gov interfere by putting bandages on the cuts and we will experience a slow, excruciating and extremely painful death with nothing but socialism and fascism to replace our proven capitalistic system.

As far as trading goes, it is probably too late to use puts to trade since a turn-around may be close at hand. Or at least a reflex rally of significant proportions. So, be looking to initiate positions with call options when we get some upside momentum going. We should get a decent rally of some sort in the coming weeks or in the next month or two. And, use some sort of stop-loss to limit your losses. As an example, say the S&P 500 falls to 700 then starts to rebound and you get into your option positions when the S&P is at 720. Then if the average was to trade below 700, you would exit your positions to protect your capital. Perhaps we get a rally back to 800-810 on the S&P's and then go down to 650 or 600 or Heaven forbid even lower. I think we could get a sharp rally of 100+ points (S&P) and then go back to test the lows. Or, we could get a monumental rally back up to 900 or even a 1,000 before retesting the lows. I do not think we will do a turnaround and directly head into a new bull market.

Remember to use a stop loss and be prepared for a reversal of some kind as the averages get into a deeper oversold condition. And keep the faith that you will be able to survive and thrive under these current conditions by having confidence in yourself first and not rely on Washington to bail you out.