Chris Johnson

'Tis the Season for Retail Earnings

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What's in Store for the Market Itself?

We've finally gotten official notice that we're in a recession (hey, thanks for the heads-up on that); the Big Three automakers are poised for failure; last week the worst employment report in 34 years hit the tape; retail sales are slowing to a snail's pace; and mortgage default and delinquency rates hit all-time highs in the third quarter.

Beware if anyone tells you they're seeing a light at the end of the tunnel. It's a light, all right -- it's the light of an economic freight train that will squash anything in its path. A look at this week's data should tell all of us that.

In my opinion, lowered CBOE Volatility Index (VIX) readings indicate that the market is not pricing in the worst case of all these trains colliding on the same track. This means that the downside potential of this market remains a stronger possibility than any sustainable rally.

Unfortunately, we find it almost impossible to be buyers of the broader market while this situation holds true. While there will be isolated bullish opportunities at the stock level, our outlook remains defensive.

While we have found reason to buy a few calls here and there (some have profited while others have not), we continue to see the short-term bull runs as noise amid the overall downward trend.

One of the worst enemies of the market continues to be uncertainty, specifically the uncertainty surrounding the various proposed stimulus measures aimed at spurring market growth.

While the market is beginning to see additional details on the Troubled Assets Relief Program (TARP) and those who will administer it under the Barack Obama presidency, the timing may be too late, because investors have already priced the bullish potential of this plan into stocks. This means that further announcements may only help stocks tread water, instead of acting as the catalyst that many on Wall Street hope it would be.

Wrapping it up, we continue to see a few options trading opportunities hidden in the landscape of this confusing market, though many positions will have to be managed differently based on the increased volatility. As always, we will continue to pass these opportunities on to our Winning Edge members, so join us today!

Chris Johnson is the co-editor of The Winning Edge, a trading service designed to help you make options profits around corporate earnings and other market events. For more information about Chris, read his bio here.