Despite the universal ban on financials, it is possible go short and buy puts on the Financial Select Spyder (XLF). On Traders Asylum we’ve been following this ETF closely, as a thermometer of the market and a reflection of the market’s faith in the financial sector’s overall health.

This past Friday, after the SEC’s shorting ban and the announcement of the Treasury’s bailout plan, XLF surged from a low of $18.24 on Thursday to an open of $24.00. However, the surge wasn’t sustainable, and the ETF has been facing significant headwinds ever since. 

"October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."
~ Mark Twain, (1894)

Operating Principles cube: It's a cool cube made of smaller cubes that opens up in different ways and you can read all the different principles like... "Demonstrating smart risk management."
~ From current Ebay auction of a genuine, shrink wrapped "Lehman Operating Principles" cube

 Alice laughed. "There's not use trying," she said: "one can't believe impossible things."

"I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast."

What a week it's been. Last week, Fannie (FNM) and Freddie (FRE) were on the verge of going down, and taking the good faith and credit of the US with them - and this week the stock tip of the week has been "buy financials". Everyone now assumes banks are doomed and the new contrarians are those calling for a rally in financials. Do we let go of entrenched assumptions and switch sides now?

As I write this, gold is down another $11, on top of the previous day's $20 loss. One more session  and gold - the traditional safe haven in times of market stress and geo-political instability - could be back under $900.