Weeks ago, the Dow broke down in the right shoulder of a head and shoulders pattern, and the rest was downside history. But it’ll take more than a Bush stimulus package, already being booed, and an aggressive interest rate cut to save this market from further downside.
Sure, a Fed cut would pump more liquidity into the market, but just like we’ve seen in the past, it’s short-lived. Look at what happened after the 50 point cut in the Fed funds rate, and a 50 point cut in the discount window. The stock market tanked.
Truth told, once we break that 12K barrier, we’ll see more panic selling. So how do you protect your portfolio from any further downside? You can go defensive or you can buy index puts, which we want to do today. I’d recommend buying the SPY March 2008 131 puts (SFBOA) up to $6.00.