The trading was a bit quiet today, however the market tanked due to banks. I also think it was partially due to European crisis as well. Recently in Germany a poll was taken and it revealed that more than 50% Germans wish to go back to Deutsche Mark rather than staying with Euro. More and more people are not willing to rescue the Euro zone anymore although politicians are still playing the same tune. However, in the next election Mrs. Merkel can be gone and then everybody will be surprised how quickly the entire Euro zone breaks down.

The European Union didn’t agree on lending money to IMF. Funny part was that originally this was a German proposal to back IMF up with 200 billion euros, but then Germany said, that it will add money to IMF only if others will. The USA already refused to participate on this risky adventure, so Germans said they won’t participate either. At least, for me this is a good news. Europe is naively thinking that by borrowing more money they will rescue their debt. Sucking healthy countries into this mess will worsen the situation not improve. It is like when you owe a lot of money that you are no longer able to pay back and the solution would be to borrow even more money to pay the original loan back. Will this solve your debt situation? Of course not. I wonder who else will be willing to lend money to Europe as a whole.

So today’s trading was quite mediocre in terms of volume, but the drop was significant. SPX dropped by 1.17% today. It is however quite normal having such volatile market during holidays. Most of the investors or traders are out of the market for vacation, so with low volume the market will be more volatile.

Nevertheless I decided to take a few trades:

I decided to close my Citigroup trade and move on. I didn’t manage this trade very well and missed a few good opportunities. I got out last week, but wanted to re-enter. Upon today’s price action I decided to give this stock up and close it with a loss. Maybe later I may re-enter when financials finally show some strength. But when looking at the mess in Europe I think this sector will remain beaten up (down). As soon as more issues come up from Europe, banks will be the first who would suffer. There may be some short term bounce, but I am not sure if I would participate.

On my short term SPY put position I will keep a very tight stop loss to take advantage of the downtrend and get out as soon as the “Santa Rally” starts. Well, if it starts at all. There is too big pressure from Europe which may push investors away from stocks to avoid surprises over the holidays. So instead of buying, they may be selling.

I decided to play TLT bearish vertical put spread. I saw this trade on MyTrade analyzed it and I liked the outcome of the trade. so I decided to open a position in TLT.

Same with SLB.

Well, let’s see where the market takes us over the holidays. At this point, it looks like we may go all the way down to 118 level (on SPY). We slightly touched 120 level ($120.03) today. Tomorrow we may see a little bounce, or if the weakness continues, we may go to the next major long term support which is on 118 level. We can also go even lower to 116 per share if there will be enough pressure. We will see whether that happens or not.

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Happy Trading and Merry Christmas!!!