Six Commandments during Recession

Let’s set rules 2 and 3 aside for a moment. They are, as I said, more philosophy than science, and depend on a certain level of rationality and honesty that is in short supply these days.

I think that we can all agree that the requirements of rules 1 and 5 for a genuine bear trend have been satisfied beyond a shadow of doubt. The question at hand is: “What happens now?”

Will Washington suddenly uncover some unfound well of competence, and drag our collective behinds back from the brink? Or are we about to tip into another yearlong round of bloody sell offs?

Bad News and Worse
I could point out the worst GDP reading in a quarter century (except I think I already have several times over the past few weeks). I could read you chapter and verse on current unemployment (7.2% according to the government, already cresting 12% according to some more “inclusive” calculations).

I could quote no less a luminary than British Prime Minister Gordon Brown, who confessed in the House of Commons that we are truly mired in a great depression akin to the 1930s. (The apparatchiks at #10 Downing Street are desperately trying to retract the statement, but I’m afraid that this particular cat is out of the bag, through the door, and out of sight down the street already.)

Or I could simply go back to Charles Dow’s tenet 4: “The Transports must confirm the Industrials.”

The Facts of the Matter
If you look at the Dow Jones Industrial Average for the past few days, you can’t help but see the fact that last Monday’s low of 7867.37 beat the previous low of 7909.03 set on Jan. 23.

If you look to the Dow Transports’ chart, you can see consecutive lower lows of 2926.66 on Jan. 27 and 2865.58 on Feb. 2.

The Only Sane Solution (and a Sure Shot at Triple-Digit Gains)
The trend is already in place. The counter-reaction is ending. The next leg down has been signaled and confirmed. The only protective tactic that makes any sense is to buy puts against both the Industrials and Transports similar to the ones I have asked WaveStrength Options Weekly (WOW) readers to purchase.

Adam Lass is a Senior Editor with Wave Strength Options Weekly

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