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The Great Financial Crisis of 2008

Written By Brian Hicks

Posted November 7, 2008

Dear reader:

What an emotional train wreck the markets have been this week.

On Tuesday… the day of the election… the Dow rallied over 500 points. I overheard many of my colleagues say that once the election was over… and the market knew who the next president would be, that the market would stablize.

However, that glimmer of hope was shattered.

In the past 2 days, we’ve seen the Dow drop a total of 929 points. Any tiny profits investors were sitting on from Tuesday’s rally are all gone.

You see, I saw the sell-off coming. And I jumped on the opportunity.

On Wednesday I told my traders to buy puts on All indicators were pointing to a horrific holiday season for online retailers.

And in just 2 trading days, we’re sitting on a profit of 28.57%.

But that wasn’t the only successful trade of the week. Just yesterday, I initiated a put on the QQQs because I believed that Cisco’s guidance was going to be horrendous. In just 24 hours, that put option is +11%.

Two days… and gains of nearly 29% and 11%, compared to a loss on the S&P 500 of 38% for the year.

But Here’s Where I See Even Better Opportunities for us Traders, Starting Now…

While once-trusted Wall Street hotshots and politicians figure out how to calm the markets, investors are turning back to value basics, and rebuilding portfolios with unfairly beaten, undervalued stocks.

That’s because cash-rich companies with solid fundamentals are selling at deep discounts… the very companies that will not only survive, but flourish when the financial meltdown passes.

Even Warren Buffett understands that.

"Be fearful when others are greedy, and be greedy when others are fearful," he says.

And that’s because he, like us, understands that sitting on the sidelines is no longer an option.

We’re seeing valuations that haven’t been seen since the 1970s. Take IBM, for example. Big Blue is currently trading at a p/e multiple of 10. Yet its trailing eps is $8.48! Exxon’s p/e is 7.57 on an eps of 9.24.

And it’s not just blue chips selling at compelling valuations. Small caps look extremely attractive. Tech company Sigma Designs, for instance, was recently named one of the top 100 fastest growing companies in America. Yet it trades at a p/e of 3.82 on an eps of $2.47.

Of course the great unknown is will the "e" in the p/e remain stable.

Nobody knows.

But we do know this: With valuations going lower than Bush’s approval ratings, institutional investors will be putting major cash to work, buying up stocks they see as great bargains. In the weeks ahead, we will witness manic buying.

But I also think we’ll continue to see manic selling. Again, look at what happened this week when the Dow ran up more than 500 points on election day… only to sell off more than 900 points 2 days later.

This is a trader’s nirvana. And as traders, we have to remain unemotional and disciplined. We will continue to go long positions when we think selling is overdone… and we’ll short the market when we think the buying is weakening.

Look, we know these are extraordinarily turbulent times. The country is in economic shambles with bailouts, bank failures, mortgage defaults and corporation nose-dives. And President-elect Obama will only inherit these problems.

And sure, credit markets seem to be thawing, thanks to liquidity injections, but the damage has been done. Economic readings are dismal, as we just saw with Bureau of Labor Statistics report on job losses.

· Auto sales were expected to rise slightly, but instead came in a 3.8 million, 11.8% below September’s reading. Truck sales were just 4.1 million, down 22.6% from September.

· Factory orders fell by 2.5% in September after a 4.3% fall in August.

· The ISM manufacturing index fell to 38.9 from 43.5, indicating the worst contraction since 1982.

· Consumer spending fell by 0.3% in September, as consumers throw in the towel. And consumer confidence has dropped to 57.6 from 70.3, offering one of the most dismal assessments of the current financial fiasco.

But there’s always a bull market to be found… just as there’s a bear market.

Indeed, we are living through what historians will one day refer to as The Great Financial Crisis of 2008.

But we’re still cashing in on this crisis… making our mint… playing both long and short sides of the market.

It’s the only way to profit in these chaotic times.

And it’s already paid off in a big, big way. In fact, over the past couple months, readers have closed 21 wins out of 25 trades… enjoying average gains of 73%, even as the major indices whipsawed hundreds of points… including:

  • Lehman Brothers January 2009 10 put: 95% in a day
  • Lehman Brothers January 2009 10 put: 49% in a day
  • CurrencyShares British Pound 177 put: 26% in six days
  • Lehman Brothers January 2009 10 put: 208% and 135% in four days
  • Morgan Stanley January 2009 25 put: 71% and 10% in two days
  • AIG January 2009 5 call: 125% and 100% in 12 days
  • iShares Emerging Markets 32 put: 71% and 157% in six days

Rest assured, we’ll always play both sides of the market. It’s the only way to win big.

Whether it’s another big corporation about to go down, or a on the verge of a breakout, we’ll find them. And you’ll profit.

Simply follow my lead and I’ll show you exactly what to do, when to do it, and how to come out on top.

Take your risk-free trial of Options Trading Pit today. We don’t want you to miss out on our next profit play.

Good Investing,

Ian Cooper
Investment Director, Options Trading Pit

P.S. If you’re not an experienced options investor, don’t worry. We do all the heavy lifting. We’ll tell you what to buy at what price and when to sell. We’ve even prepared a series of special reports and how-to-guides on trading options. You can learn more about becoming an OTP member here.