With failed afternoon rallies, retests of the October lows, and retail sales levels tumbling, it is hard to believe that a bottom is in place. It might be time to dust off the old Dow 7500 hats. I hope I am wrong for all of the 401Ks that now resemble 201Ks across America. People need to feel confident in our financial market structure before they start adding more money to it. Do not, however, confuse hope with prudent short term trading ideas. This could be a great opportunity for some long-term plays, especially those of you who like rolling covered calls, but this market looks to be pushing out of its range to the downside. Those aforementioned long-term trades will take a long time to play out. Take a look at the attached graph below. It took eight years to get back to highs set in 1999 before this latest sell-off began just last year. In addition, our recent S&P 500 trading range of 850-1050 could get penetrated very quickly with little support in sight.

Until the market tells me otherwise, I prefer to have a delta-negative bias to my trades. In my opinion, we need to focus some of our strategies toward short-term bearish trades in order to withstand the blows being directed at our retirement accounts. For those of you who only have retirement accounts, you might want to think about adding some short-term long positions in the SDS, DXD, or QID to provide some protection against your long retirement portfolios. These ETFs are ultra-shorts that can help to mitigate some of your long portfolio exposure. I would consider adding to these positions as short-term bounces occur. For example, last Thursday, November 13th provided a great opportunity to hedge some long deltas with these ultra short ETFs. With the Dow Jones Industrial Average in the midst of an 800-point turnaround midday, the DXD ultra-short Dow traded down $11.51 to a level of $74.41. If you would have added the DXD to your portfolio at the end of the trading day for $74.41, that position, according to Monday's close of $84.52, would have yielded $10.12, or 13.60% in less than a week. I am not suggesting trading these ultra-short ETFs alone. I am suggesting adding them to your portfolio in the short-term as a way to decrease your long exposure in these volatile markets.


thinkorswim, Inc. and its registered employee, Joe Mazzola, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.