Unemployment
Underemployment is still over 18%.[1] A massive amount of people on unemployment or working part-time is not going to help retailers, home builders, or banks. With high unemployment here to stay, U.S. states and municipalities will continue to receive lower revenues than their budgets require, and many will be forced to lay off more workers and make more spending cuts.[2][3][4] Governor Schwarzenegger declared a fiscal emergency a short while ago, as California’s state budget is a month overdue and currently has a $19 billion shortfall.[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]
While sellers continue to cut prices, home sales continue to plunge.[8][9] Many homes still have yet to be unloaded by banks.[10]
Expiration of Bush Tax Cuts
New taxes will come into effect and personal income taxes will rise on January 1, 2011.[11] The economy will be further strained as people will have less cash in their pockets.
Eurozone
As European countries decrease their spending, cut benefits, and layoff workers, Europeans will not have as much to spend on what America produces.[12] Ireland and Portugal recently suffered debt downgrades.[14][15] Hungary was placed under review for downgrade by Moody’s.[16] Greece already has their debt rated at junk levels.[17]
Catalysts for the Correction
-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 rally off of the 2009 lows was essentially driven by optimism. Commentators insisted that jobs were a lagging indicator and that improving reports would not stop improving. Fewer are saying the same thing today. Hope propelled the market to where it is today. Fear will push it back down.
I own SPY puts and QQQQ puts
Sources:
1. gallup.com/poll/141770/Underemployment-Steady-July.aspx
2. usatoday.com/money/economy/2010-07-13-job-openings_N.htm
3. katu.com/news/business/97737239.html
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. voices.washingtonpost.com/political-economy/2010/07/by_ylan_q_mui.html
8. finance.yahoo.com/news/Home-Sellers-Slashing-Prices-cnbc-3365853413.html;_ylt=AmSjTlj1yzGgFSyrnFy.vFi7YWsA;_ylu=X3oDMTE1aTBlZnZpBHBvcwM3BHNlYwN0b3BTdG9yaWVzBHNsawNob21lc2VsbGVyc3M-?x=0&sec=topStories&pos=5&asset=&ccode=
9. finance.yahoo.com/news/Homebuying-applications-sink-rb-2380121310.html?x=0&sec=topStories&pos=3&asset=&ccode=
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. articles.latimes.com/2010/jul/13/business/la-fi-portugal-20100713
15. marketwatch.com/story/moodys-downgrades-irish-government-debt-2010-07-19
16. reuters.com/article/idUSTRE66M15620100723
17. reuters.com/article/idUSWNA964520100427
The purpose 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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