1000 Points!!! WOW!!!!

Now that was something I have never seen before! For those that missed it, the Dow was down almost 1000 points at its low today. It was incredible to see the market drop about 500 points in 5 minutes. It brought back memories of 2008. There were two things I told you last night to watch today. The first was to see if the S&P 500 could rally above its 50 day MA. This would have been confirmation for a bullish move for the market. The second was to watch for a break of the 1150 support area (for the S&P 500). I even used all caps to emphasize the importance of that level. I said that if that level gets broken, the S&P 500 could end up at or below 1000...but I didn't expect it to get there in one day...or even 5 minutes! So a sell off didn't surprise me, but the 1000 point drop did. If you witnessed the sell off, you learned some important psychological information about the market. You could feel the fear rising in the market as the Dow dropped and the VIX spiked up over 40. It felt like a rubber band that was being stretched to its limit. As the Dow hit 999 points down, the buyers rushed in and the market snapped back as quickly as it dropped. The problem with today's move is that it doesn't give us a clear picture for tomorrow. Since the drop is being blamed on a possible glitch in the system, it's hard to tell how severe the sell off really was. If the market gaps down at the open, you might see buyers that come in and rally the market by the end of the day. If the market gaps up, you could look to set up some put positions. If you made a lot of money on today's move, I hope you took some profits. If you happened to get out near that 999 low, I want to hear your success story. For those that are late to the party, this is not a good entry area for a new trade...for a call or a put. The best entry for a put option trade would be after the market rallies up a bit. I still think the S&P could end up below 1000, but it probably won't get down there on one move (wait...didn't I say that yesterday as well?). It will probably "stair step". I've been talking about a major market drop for over two months now. You were able to see just how fast things can drop. Many of you are glad you went to cash a few weeks ago. If for some reason you had a draw down today, be careful to avoid the temptation to try to get it back immediately. I've already explained how this is not a great area to enter too many new trades. You could end up increasing the draw down if you're not careful.