R.C. Market Report 10.15

• Market Trend: Downtrend

• Today's selloff was more massive than I would have expected. It seems as though the question that's on everyone's mind is 1) are we going to make a new low or 2) are we going to rally after a successful retest.

• Argument for the Bulls: The market sold off heavily in price but not in volume. The volume was lighter than yesterday and both days were lower than the average volume of last week's decline. Eventhough we've lost over 700pts on the Dow today, we are still above Friday's close (except Nasdaq). So both price and volume have not indicated that this decline's got legs.

• Argument for the Bears: 700pts intraday selloff yesterday, and open-to-close loss of 700+ today shows people's willingness to sell rather than buy or hold. Led by Nasdaq, multiple stocks made new lows today. Most importantly, the primary trend is still down and the lack of volume behind Monday's 1000pt rise looks all the more significant now.

• My argument: My feelings are mixed between puts and calls. But the thing that I am most confident about is that the market makers will not lose money on this option expiration week. I have not tested this theory long enough to state it with full confidence but the market makers will drive the market higher, and kill the values of massive amounts of in-the-money puts. With two days left and biggest difference in margin between puts and calls being far off at 110 & 112 on SPY, they are going to have to act starting tomorrow. With that I added a call to my portfolio at the close today. BUT, in respecting the primary trend, I've also added a put to hedge myself. The call and the put are not of the same stock and my portfolio as a whole is bullishly biased.