DOOMSDAY

I got a bad feeling about tomorrow. The world markets are down significantly today and if they drop tomorrow watch out. Yes, I know the world markets respond to the US but there is a reason tomorrow could be terrible.

Investors are holding much less put protection in their portfolios than they were just one day ago - and that could send the market lower. Here's why:

Friday January 18th was an expirations day in the options market and consequently, January options aren’t available anymore – they’ve expired.

For whatever reason, traders haven’t purchased nearly as many “puts” (a bet a stock will move lower) or “calls” (a bet a stock will move higher) for February, March or the outlying months.

What concerns me is the lack of “put” buying because if there are now fewer “puts” on the downside – protection isn't as prevalent. (Remember some institutional investors will buy stock and puts together. That way they benefit if share price moves higher and they also hedge their losses if it moves lower.)

That could mean we're set up for the perfect storm Tuesday, With less put protection, negative news could spark fear more easily and send stocks down fast and sharply.

The only thing that stops us from a 750+ down day is a 75-100 basis point cut by the Fed, but I have lost all faith in the Fed. I fear the worse, get out and short.