The Dow fell 425 points yesterday to close below 8,000 for the first time since 2003 as economic news and worries over the fate of the big three automakers pushed the market lower in the final hour of trading. The selling really heated up in the final minutes and only the bell saved the market from falling flat on its back.

I have mentioned that the real threat of a lower market would be upon us if General Motors (GM, $2.79, down $0.30, Ford Motor (F, $1.26,down $0.42) and Chrysler do not get the $25 billion rescue package they are seaking. The CEOs told lawmakers “that time is running out”, and that if one of them collapsed it would have a disastrous impact on many people and industries.

Although we should have some type of resolution by the end of the week, the market is nervous and Wednesday’s decline only proved that point. The Dow dropped 427 points, or 5%, to 7,997 while the S&P 500 fell 52 points, or 6%, to 806. On a percentage basis, the Nasdaq was hit the hardest, falling 6.5%, or 97 points, to close at 1,386.

All three are rapidly approaching their lows of the 2000 to 2002 bear market and the sell-off in 2008 will go down as one of the largest declines in history if we don’t recover. For the year, the Dow is now down 40%, while the S&P has tanked 45%. The Nasdaq has suffered the worst as technology spending and electronics have slowed causing the index to fall a whopping 48%.

The numbers are insane and they will only get worse if we can’t save GM and Ford.

Rick Rouse
Rick@OptionsMentoring.com

The Dow has just traded below 11,000 for the first time in two years as it is down 235 points to 10,993. You could tell from the opening bell that this was a good possibilty as oil conitunes to set record-highs. So far, 29 out of the 30 Dow stocks are showing a loss with the lone exception being General Electric (GE, $27.77, up $0.13) which had a decent quarter.

GE announced slightly better-than-expected earnings of $5.1 billion, or $0.51 a share, compared to $5.4 billion, or $0.52 cents a share, in the year ago period. The company beat on the revenue side with $46.89 billion in sales. The report was a relief for Wall Street thanks to lowered guidance from GE that was announced in May.

The rising price of oil is also taking a toll on the market as it has reached $147 a barrel. Yeap, $150 will be a reality and $175 is a good possibility if another war breaks out. Did I mention the dollar was down again today?

There is some good news out there though.

The Merrill Lynch (MER, $26.97, down $1.74) July 32.50 puts (MERSA, $5.85, up $1.40) are up over 150% from an entry price of $2.15 on 6/30. Merrill is down in sympathy due to the Fannie and Freddie crisis. Set stops at $4.50 which gets you a 100+% return.

And finally, I’ve been telling you that Chipotle Mexican Grill (CMG, $70.00, down $1.52) was poised for a huge drop and we got that on Thursday as the stock lost over $7. Today’s plunge is just icing on the cake. On 7/3 I said: “looks like this one could fall to the low $70’s”. Check that. Make that the high $60’s now. The July 75 puts (CMGSO, $5.63, up $0.73) were trading for $1.65 and I thought they would be good up to an entry price of $2. These calls are now deep-in-the-money so protect your positions accordingly.

Rick Rouse
Rick@OptionsMentoring.com