IS THE GRINCH GOING TO STEAL THE SANTA CLAUS RALLY?

Today was a significant drop. The VIX has started to move up again. The Dow Transports were down 2.5% compared to 1.6% for the Dow. The Russell 2000 was down over 3%. These can be a signals that a larger drop is underway. Though the Dow closed barely below 12,000, it is an important psychological blow to the bulls. Combine the technical indicators with the bad news coming out of Europe and you have a recipe for a decent drop. This doesn't mean that I'm recommending an all out rush to put options. We'd still like to see some follow through to today's move down. You could enter into some put positions on the DIA, SPY, or QQQ...with a stop above today's high (or even Wednesday's high). I entered into some FAZ and TZA call contracts at the close. I got burned on this trade last week when the Dow rallied 500 points. I'll play the probabilities and assume that rare event won't happen twice in one week. MAKE SURE YOU USE AT LEAST JANUARY OPTIONS FOR ANY NEW OPTION TRADES. I could see a scenario where we drop for a few days, then move a bit sideways through the end of the year. Most professional traders take the last two weeks of the year off...or at least the last week. Usually the only ones trading during the last two weeks are the amateurs and the professionals that are trying to trade against the amateurs. I told you a few weeks ago that I've never seen a market crash in December. This doesn't mean that it can't sell off a bit. It would be surprising to see a massive drop during the normal "vacation" period. This hasn't been a "normal" year though, so I'll be prepared either way. I still like BIDU, CF, and AMZN as bearish trades. If you have had a big draw down in your account over the last couple of months, you might want to be careful and wait for a bit more confirmation.