DOW Broke November Lows: I Am Buying S&P Hedged for Financials

Source: Wall Street Journal

My Comments: Bank stocks are weighing on indexes. XLF fell 5% today(Citi: -14% to $2.51, BAC: -14% to $3.93). The nationalization theme is playing on markets. Ruling out the case where the government injects capital by buying bad assets at above current market values, severe equity dilution seems a certainty. Markets are adjusting to that eventuality. I think S&P will also break its November lows at some stage. But minus financial stocks, nationalization makes me optimistic. In the long-term, political interference will certainly not be a good thing for allocative efficiency. For now, however, government ownership will inspire confidence and is good news for the rest of the economy. I am now inclined to buy SPX hedged for financial sector stocks. I am also selling December S&P@1000 calls.