Pre-Market Alert: Stunning Drop Ahead

Futures Halted Down 550

By Bryan Bottarelli
Friday, October 24, 2008 9:12 AM EDT
Fri, 24 Oct 2008 13:12:00 GMT

Dear Bottarelli Research Member,

In yesterday’s last alert of the day, titled “Closing Day Notes,” I wrote, “With moves like this, it’s best to remain on the sidelines. Going into tomorrow, we could play another round of DIA puts, as I don’t expect to see traders holding positions going into the weekend. But we’ll make this decision once we see how the markets open tomorrow.”

Well, the instinct to play another round of DIA put was indeed correct, but unfortunately, we’re going to see a stunning market drop right at the open. As I write, pre-market futures are halted down 550 points. That means by the time the markets open, we could very well see a gap-down in the 700 to 1,000 point range.

With a move like this, everyone will be asking “is this the blow-off bottom?” As traders, it’s important for us to avoid questions like this. Instead, we’ll trade based off the market tape — not based off our forward view of the markets. As you saw yesterday, the market changes its mood every 30 minutes. We must remain as nimble as ever.

Once the markets open, we’ll most likely see a devastating drop. And for now, I’d like to remain on the sidelines. Perhaps I’ll issue a quick play, but that’s about it. This is a dangerous time — where whipsaw moves can really take a bite out of your trading. Therefore, I think it’s best if we maintain cash in the midst of this fury.

As always, I’ll be here to guide you through this fiasco.

Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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