For the last couple of days, we've made it pretty clear the way to play the market right now is to fade the rallies and get short the index ETF's on any short-term strength in the market. We followed our own suggestion and purchased some put options on the SPY's going into the close yesterday after a brief two day market-wide rally. Those same options are up 40% overnight as I type. Although those are excellent returns, it's important to remember options erode with time, so unless you're way in the money and the trade is going extremely well in your direction, it's important not to hang on to an options trade for long, especially in this market when things can change on a dime. Bottom line here is if you're willing to pick your spots, you can make money in any market environment, you just have to be patient and disciplined about it. You're probably not going to win on every single decision you make, but as long as you're willing to quickly cut a loser like we did on Monday's open, you can live to trade another day and more than make up for one wrong trade in a single day. Today's move to the downside most definitely doesn't help the bullish argument, that's for sure. I suspect our best case scenario right now for the major indexes would be to trade in some sort of range, but even that hasn't proved itself out yet. Today's sharp leg down is an indication again that we may test the June 4th low of roughly 2726 on the NASDAQ Composite before it's all said and done. The question now becomes, will we get there in a straight line off today's sharp move lower or will we bounce around before we end up there? Who knows, however, depending on what happens, we'll remain opportunistic not optimistic. If you missed it, go back and read Monday's Edition, that will give you further insight as to what we think this market is going to do in the near-term. It's not a pretty picture right now, but the silver lining is we're likely going to see some pretty good bargains for the long-term as not only the U.S. figures out what the heck it's doing, but the rest of the world as well. Having cash on the sidelines isn't necessarily a bad thing. It's better to be out wishing you were in, than in wishing you were out. Does this Mean the Government is Forcing Me to Buy Something? To be honest, I'm no healthcare expert, but I've been around investing and trading the markets for a very long time. I thought today's Supreme Court Ruling on the subject of healthcare would be an opportunity for us to make a couple of key observations that any investor should remember every time they decide to jump on a news event. Before we get into that though, I'm a little torn between the Supreme Court's Ruling. In a nut shell, since when does our Government have the right to force us to buy a product from the private sector? I mean really?? That's like me telling you that unless you go out and buy eggs for breakfast, I'm going to punish you. I know I'm stretching the issue a bit, but am I really? On the other hand, it is a vote for the private sector in a sense because at least they're not taking over healthcare in this country. It's all just a bit of a mess to me. Just my two cents. Back to the point of our commentary today. There's two key market phrases that come to mind with today's ruling, as well as ARNA's FDA approval of their new diet drug yesterday... "buy the rumor, sell the news" and a "crowded trade". We'll start with the first. When the media starts to exploit a potential trading or investing opportunity based on the anticipation of a coming news worthy event, all kinds of rumors start to surface. Well, regardless of all of those rumors, the smart money usually already knows what the outcome is going to be. Therefore, the stock(s) in question start moving well in advance of the actual news hitting the wire. Once that news hits the wire, the easiest money has already been made, but unsuspecting investors still pile in on the news in hopes of easy gains. Wrong. Again, the easiest money has already been made. The stock(s) in question may pop a little on the news, but rest assured that once a trade becomes "crowded", it becomes a market maker's game, one you may not want to play on a short-term basis. The gains at that point don't become easy. You need to either identify very early on what the smart money is doing based on rumor, or wait until the news has hit, let the stock back off, see what happens for a few days or weeks, and then make a decision that the actual news will have a long-term positive effect on the stock/s in question. Don't think for one New York minute that you're the only one that has seen that news. Can a particular stock buck that strategy and even move higher on the news after already running up prior to the news? Sure, but it's a crap shoot, one we're not willing to take. The prudent strategy would be to sit out the frenzy and see what the stock does for a while. Arena Pharma (ARNA) yesterday received FDA approval on their new diet drug, which was the first FDA approval of its kind in thirteen years. The drug is supposed to be worth billions, and I suspect it will be. However, this is a perfect example of a stock that has been highly anticipated via rumor that they were going to get their FDA approval. Well, today, the stock isn't even as high as it was three days before the actual FDA announcement. If you weren't in early, let the stock breathe, see where it wants to go, then decide. It's the most prudent way to play stocks that have been in the limelight due to rumor. For what it's worth, based on their FDA approval, I do believe ARNA is actually undervalued now. There is one way to successfully play news though. When a stock has been very quiet of late and all of a sudden announces game changing news for the company AND the stock doesn't gap up on the open, it's worth taking a shot. Or, if all of a sudden you are among the first to see news from a company hit the wire in the middle of the trading day, that can be highly rewarding. News that unsuspectingly hits the wire in the middle of the trading often catches market makers by surprise, therefore, you have the ability to jump in before they can adjust their positions. It's just never easy is it? Since I've already taken up enough of your time today, we'll go ahead and cover the topic of a "crowded trade" in more detail tomorrow... barring any major developments overnight in the markets. Have a great rest of the day.