The Underemployed
The underemployed still make up over 18% of the U.S. population.[1] Retailers, home builders, and banks will continue to be burdened by this. As underemployment remains high, states and cities will continue to take in less revenue than they expect and will realize that they must further reduce their spending.[2][3][4] Recently, California’s Governor declared an emergency as California’s budget is overdue and presently has a massive shortfall.[5]
Housing
Credit will be not be as easy to come by for those who have suffered foreclosure.[6] As retail sales stabilize or decrease, commercial real estate will continue to lag.[7]
Housing is more likely than not to double dip.[8][9] Banks still have not gotten rid of their shadow inventory, and it does not look like there will be another home-buyer tax credit anytime soon.[10]
Tax Increases
New taxes will come into effect and personal income taxes will rise on January 1, 2011.[11] The economy will be further strained as people will have less cash in their pockets.
European Debt Crisis
As European countries decrease their spending, cut benefits, and layoff workers, Europeans will not have as much to spend on what America produces.[12] Ireland and Portugal recently suffered debt downgrades.[14][15] Hungary was placed under review for downgrade by Moody’s.[16] Greece already has their debt rated at junk levels.[17]
Reasons the Correction Will Occur Before Year-End
-While the death cross by itself is fairly useless, it does breed a bit of fear in those holding securities.
-More reports will show that housing, jobs, and other sectors of the economy are not growing as fast as was expected. These reports will cause more to lose faith.
-Sentiment is beginning to turn more and more negative. Optimism was the primary driver of this market. Talking heads were constantly spouting that jobs were a lagging indicator and that improving statistics would just keep on improving. The rally was driven by hope, and that hope is waning.
In the interest of full disclosure, I own QQQQ puts and SPY puts
References:
1. newsblaze.com/story/2010080511400200002.pnw/topstory.html
2. suntimes.com/business/2493278,Job-opeings-drop.article
3. katu.com/news/business/97737239.html
4. thenewamerican.com/index.php/economy/sectors-mainmenu-46/4017-facing-fiscal-meltdown-municipalities-struggle-with-pensions-
5. news.yahoo.com/s/nm/20100728/pl_nm/us_economy_california
6. cnbc.com/id/38152583/US_Consumer_Credit_Plunges_in_May
7. politifi.com/news/Retail-sales-fall-adding-to-recovery-worries-930534.html
8. cnbc.com/id/38244093/Home_Sellers_Slashing_Prices_While_Banks_Mow_the_Lawn
9. reuters.com/article/idUSTRE66D1L220100714
10. calorganize.org/node/732
11. atr.org/six-months-untilbr-largest-tax-hikes-a5171#
12. huffingtonpost.com/2010/06/29/europes-massive-austerity_n_629062.html
13. finance.yahoo.com/tech-ticker/greece-in-%22death-spiral%22-europe-still-in-deep-deep-trouble-says-niall-ferguson-518977.html;_ylt=Ajo2DUEbiEHW4ZXR3JQ6oo.7YWsA;_ylu=X3oDMTE2aDFyMHY2BHBvcwMxMQRzZWMDdG9wU3RvcmllcwRzbGsDZXVyb3Blc3RpbGxp?tickers=udn,uup,ero,fxe,spy,%5Eftse&sec=topStories&pos=9&asset=&ccode=
14. articles.latimes.com/2010/jul/13/business/la-fi-portugal-20100713
15. marketwatch.com/story/moodys-downgrades-irish-government-debt-2010-07-19
16. bloomberg.com/news/2010-07-23/moody-s-places-hungary-s-baa1-sovereign-rating-under-review-for-downgrade.html
17. reuters.com/article/idUSWNA964520100427
The purpose of Options Trading Now is to feature a critical view of the market, while providing a detailed report of my options trading. I have been trading puts for some time and am currently holding qqqq puts and spy puts.
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