Before I jump into this, let me make something very clear. I am not giving you advice, suggesting you make any particular trade, looking for clients (I have never had a client and don't want any), or any other thing for which you are allowed to come back to me later and say I cost you money. These are just my thoughts about the markets right now and any trade you make is your responsibility, period.

[Update at 6:30 PM Mountain Time: In the first minutes of the trading day in Asia, both the Australian and Japanese markets fell 7%. Stock index futures here plunged with remarkable rapidity, with Dow Jones futures going from down 70 to down 180 in not much more than a minute. This is true panic.]

The market got demolished today, dropping 400 points in the last hour for the second day in a row, to close down 679 points, the 3rd worst point loss ever.

Although the last hour yesterday and many other hours during the past two weeks have been ugly, this one felt the most panicky to me.

Furthermore, NYSE volume was over $2 billion, much higher than yesterday and on a Jewish holiday when trading volumes are typically light.

There are two ways to look at the impact of the holiday. Either there will be more sellers tomorrow when members of my tribe come back, or they would have been buyers had they been at work and would have dampened the sell-off.

It's hard to know.

Here's what I hope to see:

A down opening and a close up on the day, with the market going up in the last 30 minutes rather than down. (I'm more interested in a good last half-hour than a down opening.)

If we can get that and then not break through today's lows or tomorrow morning's lows, we may have seen the bottom for a while.

What's going on in the world is so bad that it's hard to imagine what could cause the market to stop going down other than sellers simply being exhausted and finished. The so-called capitulation.

One might think today was it, but one could easily have thought the same thing yesterday.

I'd also point out that bear markets don't have to end with "V"-shaped bottoms. They can end in a "saucer", essentially a very long boring period of relative inactivity which can take weeks...or years.

The CBOE Volatility Index (VIX) closed at an all-time high, showing massive fear in the market. And who wouldn't be afraid? But usually extremes of emotion (or extremes of complacency) point to the end of a move.

My view is that the market, when it bounces, will have only limited upside potential. 20% would surprise me, and keep in mind that 20% up from here barely gets us above 10,000 on the Dow. I think that any big rally will be an opportunity to sell.

All in all, I think the real opportunity in this market is in selling call options because implied volatilities are so high. I'm selling S&P 500 calls, but only strikes that are more than 20% out of the money.

If I had cash that I really wanted to invest in stocks, I'd probably do it by selling out of the money puts instead of buying the stocks. That way you have a little cushion if they go down more, and if the stock only goes up a little, you're no worse off.

I would not be bargain-hunting in bank stocks. Yes, this consolidation will create some enormous winners in the future, and we probably know who they are (BAC, WFC, JPM, maybe GS), but the potential for a piece of bad news to take these stocks down 20% or 50% in a blink of an eye is just not worth the risk in terms of trying to find "value". If you really feel that the whole financial industry is just too cheap, play the XLF ETF...it's also a good candidate for selling options, but you have to make up your own mind about where you think it's going. Personally, I don't think financial stocks are safe even though they may be "cheap".

One thing to keep an eye on is treasury bond yields. The interest rates on both two-year note and ten-year note (that link is the yield times 10) were up today, meaning that people are not screaming to buy only government paper with utter fear of corporate or municipal paper. Also, LIBOR, the rate which banks charge each other for short-term borrowing, didn't go up today. Both of those things are fairly unusual for such a horrible day in stocks. This implies to me that either bond prices have to go up or stock prices have to stop going down. I don't know which, but I'll be looking for some trading opportunity tomorrow...probably just selling index calls, which is not a game for the faint of heart.

For the record, what I'm most afraid of is a big bank failure (esp. in Europe) or one of our politicians/bureaucrats (esp. Bush or Paulson) scaring the market again as Paulson did yesterday.

Good luck out there.

Again, your trades are your own. Do not take this note as trading advice, just one guy's opinion...and an opinion given in the most difficult market of my professional career.