Stocks Are Poised For A Tumble: Is Trading Now A Smart Move?

Unemployment

More than 18% in the U.S. are still underemployed.[1] This will continue to place a burden on retailers, home builders, and banks. Many U.S. cities and states will be forced to downsize their labor force and make cuts in other areas as high unemployment continues to limit the amount of revenue they receive.[2][3][4] Not long ago, the Governor of California declared a fiscal emergency.[5]

Housing

Those who have been foreclosed on will not enjoy the same access to credit that they have been accustomed to receiving.[6] The consequential decline in or leveling out of retail sales is not going to do commercial real estate any favors.[7]

Home sellers have been slashing prices, while home sales continue to sink.[8][9] The amount of homes banks are keeping out of the market is still substantial.[10]

Expiration of Bush Tax Cuts

Many new taxes will take effect in less than six months.[11] These taxes will take a massive toll on the economy.

European Debt Crisis

Many European countries will cut spending, cut benefits, and lay off workers.[12] This will affect sales for many American companies. Not long ago, debt downgrades hit Portugal and Ireland.[14][15] Moody’s Investor Service put Hungary’s debt rating under review.[16] The debt rating of Greece is currently at junk status.[17]

Reasons the Correction Will Occur Before Year-End

-While the death cross by itself is fairly useless, it does breed a bit of fear in those holding securities.

-Negative housing and jobs reports will likely spook weak hands.

-The massive rally was mainly driven by optimists. Analysts continued to regurgitate that jobs were a lagging indicator and that once numbers started to improve, they would continue to improve and not level off. More and more are beginning to see the writing on the wall. Hope was the primary driver of this rally, and that hope is fading.

In the interest of full disclosure, I own QQQQ puts and SPY puts

Sources:

1. newsblaze.com/story/2010080511400200002.pnw/topstory.html

2. finance.yahoo.com/news/Job-openings-drop-in-May-as-apf-1383917273.html?x=0&sec=topStories&pos=3&asset=&ccode=

3. kswo.com/global/story.asp?s=12751713

4. thenewamerican.com/index.php/economy/sectors-mainmenu-46/4017-facing-fiscal-meltdown-municipalities-struggle-with-pensions-

5. reuters.com/article/idUSN2822176520100728

6. cnbc.com/id/38152583/US_Consumer_Credit_Plunges_in_May

7. marketwatch.com/story/retail-stocks-fall-after-drop-in-june-sales-2010-07-14

8. cnbc.com/id/38244093/Home_Sellers_Slashing_Prices_While_Banks_Mow_the_Lawn

9. cnbc.com/id/38239511/US_Home_Buying_Applications_Sink_to_13_Year_Low

10. latimes.com/news/custom/scimedemail/la-me-derelict-homes-20100711,0,6945778.story

11. atr.org/six-months-untilbr-largest-tax-hikes-a5171#

12. huffingtonpost.com/2010/06/29/europes-massive-austerity_n_629062.html

13. finance.yahoo.com/tech-ticker/greece-in-%22death-spiral%22-europe-still-in-deep-deep-trouble-says-niall-ferguson-518977.html;_ylt=Ajo2DUEbiEHW4ZXR3JQ6oo.7YWsA;_ylu=X3oDMTE2aDFyMHY2BHBvcwMxMQRzZWMDdG9wU3RvcmllcwRzbGsDZXVyb3Blc3RpbGxp?tickers=udn,uup,ero,fxe,spy,%5Eftse&sec=topStories&pos=9&asset=&ccode=

14. washingtonpost.com/wp-dyn/content/article/2010/07/13/AR2010071306168.html

15. digitaljournal.com/article/294858

16. istockanalyst.com/article/viewiStockNews/articleid/4343477

17. guardian.co.uk/business/2010/apr/27/greece-credit-rating-downgraded

The intent of Options trading now is to present a critical view of the market, while producing a detailed report of my options trading. I have been trading puts for some time and am currently holding qqqq options and spy options.

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