This was supposed to be a subdued week. That was the working plan amongst trader types. Today a huge wrench was thrown into that plan when renewed fears of European bank contagion and more weak US economic data sent the Dow Jones Industrial Average down 3.7% to 10,991, the S&P 500 down 4.5% to 1,141, and the Nasdaq down 5.2% to 2,380.
At this point both the selling and lunacy are playing off one another, each exacerbating the other. Markets sell off, then politicians come up with some idea to help; like several EU nations banning short-selling. And the markets sell-off again. Then another European plan to comes to fruition: Let's implement a financial transaction tax. Lather, rinse, and repeat until we all panic.
"We're talking ourselves into a recession," says Jon Najarian, co-founder of OptionMonster.com. Consumer confidence is at 31-year lows and periods like the last 3-weeks only make matters worse. There are even fewer people who need convincing that the recession is already here.
We can belabor these points and what Nesto refers to as "a drought of ideas" tomorrow. Trust me, the problems will be here in the morning. For now let's focus on what the good "Dr J" Jon Najarian is looking to buy as the whirlwind of selling picks up steam. Somewhat surprisingly for a trader, he's looking for dividend plays. To be clear, he's not "trying to catch a falling knife" but he does have a shopping list.
Specifically, Najarian is looking to put money to work in SeaDrill (SDRL), Annaly Capital (NLY), Chimera (CIM) and Exxon Mobil (XOM). All dividend plays with yields ranging from Exxon's heady 2.7% to Chimera's bizarre 17% plus. Obviously the yields present in today's market reflect a stunning level of risk-aversion, some of which may be justified.
As is the strategy often discussed on Breakout, Najarian is putting his money to work in blocks, rather than calling the bottom all at once. He's also using diversification and options to mitigate some of his risk.
The bottom line: He's not panicking, he's staying constructive, and looking for things to buy. That's the way pros do it, even when their vacations have been canceled.
We'll be back tomorrow to try to turn that frown upside down.