The stock market sold off last Thursday. Even gold could not avoid the collapse, as the October gold futures plummeted to $1,700. We have the debt crisis in Europe, with Greece facing a default situation unless its austerity program is accepted by lenders. Moody’s downgraded eight Greek banks after several Italian banks were also downgraded.

Watch the S&P 500 as it nears a critical support level of 1,125 and the four-week low at 1,114. A break could send the index down to below 1,100.

Small-caps are getting hammered, with the Russell 2000 down over 26% from its high and now technically in a bear market.

Watch over the next few days to see if oversold buying emerges.

There is nowhere to hide. Even gold and metal plays are being dumped despite gold being a safe-haven play. Investors are clearly dumping everything.

This could be an opportunity to buy on weakness; but, without a firm base, there could be additional downside moves.

Watching your asset value decline is not great, but you can minimize the effect.

I continue to recommend using put options or buying short-based exchange-traded funds (ETFs) to offset the weakness. It’s easy and cost-effective as a defensive hedge.

Don’t be put off by options. They are a great risk-management tool that is more than often overlooked by the retail investor or trader, but used often by the pro traders and institutions. The SPY index option that tracks the S&P 500 is a top trader on the CBOE.

You can buy puts for stocks and sectors.

Take a look at your holdings and break them down according to the sector, whether they’re technology, industrial, small-cap, large-cap, etc.

The second step is to take a look at the various indices that closely reflect your holdings.

If you are heavily weighted in technology, you can buy put options on the PowerShares ETFs (NASDAQ/QQQ), a heavily traded ETF in technology.

Or let’s say you have benefited from the run-up in gold and silver to record historical highs, a strategy may be to buy put options on the Philadelphia Gold & Silver Sector (NASDAQ/XAU), which tracks 16 major gold stocks and silver stocks.

To play the near-term downside weakness in small-caps, you could buy the ETF ProShares UltraShort Russell 2000 (NYSE/TWM).

Alternatively, if you hold a large position in several stocks, you can buy put options on these individual stocks and help protect against a major downside move.

Be careful and remember that maintaining your capital will allow you to trade longer-term.

With the upside limited at this point, you may also want to write some covered call options to generate premium income and reduce the average cost base of your positions. But be careful, as an oversold rebound could take out your position at the call strike price. Make sure you are comfortable with the upper strike price of your covered call. Make sure it’s above the key resistance of the stock.

The key now is prudence and protecting your assets.

The overall stock market bias continues to be bearish. The selling capitulation remains in effect. Just take a look at what happened on Wednesday:

• DOW down over 500 points
• S&P 500 down over 100 points
• NASDAQ down over 50 points

The fact that we have yet to see a firm bottom makes the situation dangerous.

The key indices are in correction territory. The small-cap Russell 2000 is in a bear market, down 24% from its high and 16.24% this year.

The near-term technical view is BEARISH, as the key indices trade well below their respective 50-day and 20-day moving averages on weak Relative Strength.

The downside risk is extremely high and bearish.

My investment advice is not to go out and dump all of your stocks. Take a step back and think about the situation and where you are with your investments and personal finances.

You may want to take some profits on some of your bigger winners.

The key to successful stock picking is to understand the concept of risk management as an essential element to investing success. The reason why I want to discuss risk management is my sense that there are some of you who probably fail to incorporate some sort of risk-management strategy. If you do, that’s fantastic and you are probably sleeping well at night. If you have been delinquent in this area, be careful.

I have been involved in the markets for over 20 years. After reading the strategies of some of the world’s best traders, a commonality surfaces: the most important tenet in trading is preserving your investable capital via the use of risk management. The last thing you want to happen to you is to trade sloppily and lose your tradable capital. Instead of being a player in the exciting world of trading, you would be relegated to watching from the sidelines. But guess what? You can avoid this by following some simple strategies.

When the price of a stock trends higher, you should always think about a potential exit strategy. Have you done this during the current stock crisis?

This does not mean liquidating profitable trades; but rather protecting your unrealized gains.

If you have a price target for your stock, you can sell the stock when it reaches that target. Alternatively, if the gains are significant, you can take profits on a portion of the position and let the remaining portion ride. For instance, if a stock rises by 100%, you can liquidate 50% of the position and let the remaining half ride. Under this simple strategy, you realize some profits, but at the same time create a zero cost trade, as you have already recouped your initial investment. You can view the remaining half as your risk capital.

Another strategy that needs to be considered is the use of mental or physical stop-loss limits. The reality is that no one is perfect in trading. I have made mistakes and so have many of you. If you can accept this, then that’s half of the battle. The problem is that during a fast market such as we have now, setting a stop too close will likely take you out prematurely. So, at times of market chaos, you may want to make the stop price lower. The last thing you want is to be stopped out during a big down day and then watch stocks surge like last Tuesday. Conversely, setting the stop too low can entail large losses.

And, for those of you familiar with options, you can employ a put hedge or protective put to help minimize the downside loss. If you own mutual funds, you can buy the appropriate index put by determining the type of fund it is (e.g. small-cap, blue-chip, S&P 500, technology).

If you are already adhering to risk-management strategies, good for you! Otherwise, learn them and it will make you a better and more successful trader and investor.

This is not a market for the risk-adverse. Watching the key stock indices plummet over 10% in less than a week is scary and nerve-wracking.

But the world is not ending. That I can say.

My best investment advice at this time is to remain calm, but at the same time monitor your positions carefully. Use put options to hedge the downside risk.

The Standard & Poor’s downgrade of the U.S. credit to AA-plus from triple-A is worrisome, as the country may have to increase its risk-adjusted yields to attract buyers of debt. This in turn would place an extra burden on the U.S. treasury and continue to make it difficult to deal with the massive debt and deficit. The S&P 500 is also looking at another potential downgrade to AA in November. The rating agency is also looking at U.S. local and state governments with exposure to these debts. I like the decision to downgrade, as it is objective.

While there is a risk of another recession, the likelihood is low at this point, but could pick up if the U.S. economy falters. JP Morgan Chase & Co (NYSE/JP) downgraded its estimate for the U.S. Q3 GDP to 1.5% from 2.5%.

At this juncture, the near-term upside potential appears to be limited unless there are new reasons that entice traders to buy.

The key risks are:

1) U.S. economic renewal

2) U.S. debt and deficit

3) European debt and growth

4) Global economic growth

The fear now is the occurrence of another recession in the U.S. and globally. The concern is that the downgrades could be enough to trigger another sell-off and financial collapse.

The bear market is in effect. The stock charts are extremely ominous and there is a lack of sustained buying support, as the selling bias grips the market.

Investor sentiment is extremely bearish.

The DOW lost a whopping 512 points or over four percent on August 4. But this was followed by a 634 point sell-off, or 5.55%, on Monday, the worst one-day loss for the DOW since December 2008.

Technology fared the worst, with the NASDAQ plummeting over five percent on August 4, followed by a 6.9% decline on Monday.

The selling capitulation has entrenched the market, as investors and traders continue to head for the exits. The selling volume is high and on the rise, which is bearish.

Charts are bearish and flashing a SELL.

The near-term technical picture is bearish, as the key stock indices trade below their respective 50-day and 200-day moving averages.

In addition, Dow Theory also indicates a reversal to sell based on the Dow Jones Industrial Average and Dow Jones Transportation Average both breaching their respective June lows on August 2. Again, this is not a good situation.

The S&P 500, NASDAQ, DOW, and Russell 2000 are deep in negative territory for this year.

The biggest losers are the small-caps, with the Russell 2000 down over 17% this year.

The key stock indices are down over 16% from the high, which is technically a market correction. The Russell 2000 is down a whopping 25.12% from its high as of August 8.

U.S. stocks are now underperforming the Shanghai Composite Index.

The stock market is dangerous at this time in the absence of a base or support. The condition is extremely oversold, so watch for any support. Failure to hold could drive the stock indices to new multi-year lows, so be careful.

The best strategy for risk-adverse traders is to protect via put options.

My best stock advice is to wait and see for some strong support on high volume prior to buying.

Be careful and remember that maintaining your capital will allow you to trade longer-term.

The charts of the key stock indices look ominous after the selling on Tuesday in which the DOW and S&P 500 lost over two percent. Small-cap stocks fared the worst, with the Russell 200 down 3.26%. The selling was on above-average trading volume above the 50-day moving average (MA).

The near-term technical picture is bearish, as the stock indices drove below their respective 50-day and 200-day MAs. The S&P 500 and Russell 2000 have also turned negative for this year. The stock market is dangerous at this time, without any base or support.

At this juncture, stock markets are bearish and showing uncertainty. And, while I do not pretend to have a crystal ball, I do firmly believe in adopting strong risk management to protect your investments and hard-earned capital. This is my best stock market advice.

The last thing you want is to watch your gains disappear.

One of my favorite strategies to protect investment gains is the use of put options as a defensive hedge against market weakness. It’s time for a refresher.

Investors may be somewhat bearish or uncertain and want to protect the current gains against a downside move in the stock or the market with the use of index put options.

For those of you not familiar with options, a buyer of a put option contract buys the right, but not the obligation, to sell a specific number of the underlying instrument at the strike or exercise price for a specified length of time until the expiry date of the contract. After the expiry date, the particular option expires worthless and any responsibility is eliminated.

The buyer of the put option pays a premium to the writer of the option who gets compensated for assuming the risk of exercise. The writer of the put option is obligated to buy the stock from the holder of the put should it be exercised by the expiry date.

For the writer of the put option, the amount of premium received for assuming the risk is generally directly correlated to the volatility of the stock and market. The more volatile the stock, the higher the premium paid for the option. And low volatility translates into lower premiums.

You can buy puts for stocks and sectors. If your portfolio is heavy in technology, you can buy puts on the NASDAQ. Or let’s say you have benefited from the run-up in gold and silver to record historical highs; a strategy for you may be to buy put options on The Philadelphia Gold & Silver Index, which tracks 10 major gold and silver stocks.

If you are heavily weighted in technology, you can buy put options in PowerShares ETFs (NASDAQ/QQQQ), a heavily traded put used for defensive purposes.

It’s that easy. Just take a look at the various indices that closely reflect your holdings or put options on individual stocks that you may have a large position in.

In this market, safety is the key.

On July 19 and 21, the key stock indices surged towards their respective multi-year highs. The key stock indices have shown some resilience after battling back from being down nearly 10% this year to the point where the S&P 500 is less than two percent from its multi-year high. The key stock indices are aiming higher, but I sense that it will not be an easy route to a breakout given the difficult resistance as stocks move towards the upper levels.

On the charts, the overall market is moving higher. About 63.31% of all U.S.-listed stocks are above their respective 50-day moving averages (MAs) versus 30.92% a month ago.

But I’m not convinced any strong upside move is sustainable and feel that the key stock indices could trade sideways for the summer months.

A key chart development for driving the rally was the upward break by the key stock indices at above their respective 50-day MAs. The S&P 500 broke below its 50-day MA on July 12 at 1,312, but has since rallied and could be heading higher.

On the S&P 500 chart, there is key support around 1,250. A break below would be bearish and see a potential move to below 1,200. I expect the support to hold. There is strong resistance at around 1,362. A strong break above could drive additional gains towards 1,400. On the chart, we continue to see a bullish golden cross with the 50-day MA above the 200-day MA.

The negative I see is the relatively light trading volume during the up days, with the exception of decent trading during the surge last Thursday. What you what to see is mass market participation in the market when stocks rise as a confirmation of common interest.

While the charts are slightly positive, they can also quickly reverse.

A plus for the bulls has been the strong earnings season early on that I had discussed in my previous commentary. Technology appears to be leading the charge.

I admit the strength in stocks has caught me by surprise, but now the outlook looks better and bullish on the charts if the gains can hold. At the same time, don’t forget the high debt risk in Europe, despite the resolution, and the debt ceiling debate in this country.

And there is also the matter of generating jobs to drive spending and economic renewal. Moreover, the housing sector continues to see declining prices driven by excess inventory, foreclosures, and the dreaded short sales where homes sell for less than the mortgage value.

I feel that the near-term upside could be limited by the market risk. The key is to watch the volume on upward moves to gauge interest in the market.

My investment advice would be to take some profits off the bigger winners, but otherwise ride the upside. You may also want some downside protection via put options.