Watching the Market Breathe

Warren Buffet's Berkshire Hathaway stock (BRKB), one of our largest Blue Chip Options (www.bluechipoptions.com) holdings is down 37% as of Friday, with the market hitting 8 year lows in Friday's trading, and dropping as low as a theoretical Dow of 7209. Traders were not able to get in on puts, as the market moved to quickly in downward cycle, unless day trading and following tight whipsaw patterns through the day, in which case .50 to .75 profits were available. Despite a market turnaround near the end of the trading day the market closed lower again, assimilating more and more bad news.

Some chartists see a doji in candlestick charts, others see support lines broken, new multiyear lows hit, and the fight between bulls and bears continues.

We have been "early" on three call recommendations now in three weeks, while profitable multiple times on put recommendations. This means our version of a "straddle" has been less effective, simply because the market has no turnaround or exhaustive gap up days, and no hesitancy in downward pressure.

Slimey banks like BOA and Citi may now have to be nationalized. Conservatives argue for "let the market run it's course and free enterprise validate itself." Liberals argue that a buy out of what has occurred is the only way out.

And, in the real end, no one knows, as we have entered "depression" territory, with new frauds being exposed daily, and example of where free enterprise capitalism fails without regulation, and with lobbying that corrupts our voting Congress.

Sigh. History is being made here. New all time lows in an 8 year period.

This makes it hard to trade anything. One subscriber wrote me several times during Friday's trading, waiting for the "bottom" and ready for a new call trade. Here's his dialogue to me:

"I feel good about my decision to stay away...I am a little disappointed that I didn't enter the position when the OEX hit the S3 level...I felt like that was a good place to enter (I could have got 7.70 on the 380 call and made 2 1/2 bucks))...but like you said...we are making new lows and who knows where we are going to stop...

I believe we are heading to the S&P 740 level...it seems like the market "needs" to test that low again...

After that, I am hoping for a large bull rally...what I don't understand is which index drives the market? Or neither of them do? I find it quite weird that you make DOW projections and are usually pretty accurate...which I translated as that the DOW action/support and resistance levels/ drives the market...but now it appears we went through the DOW lows but not the S&P lows...so maybe the S&P is running the show for now?

I don't know!!

What "sign" are you looking for exactly that would indicate the marker has turned around? How do we really know when the bottom testing is over?"

In the end, this trader did not day trade the calls, also a potential profit, in the afternoon rally. He's right that the S &P held more than the Dow (banking stocks), but may be wrong that the market is "ready to turn".
Most all of us want this, or see this over extended market and see no reason it has not. What we want and see to be right has not yet occurred.
This is what is important to realize: what should be is not relevant. What situations occur that are now logical are still situations that are not logical, and still occurred. It is what it is.
This is watching the market breathe.