It’s the “C” word I hate to mention.

PRE-OPEN MARKET COMMENTS FRIDAY – The market has been able to deflect all of the bad news, but it has finally met its match. Once credit concerns start to surface, asset managers get very cautious. The warning signs are clear.

In the last two weeks we’ve had two subprime auto lenders fail. As a result, Chase took a loss and Jaime Dimon said, “Where there’s one cockroach, there are usually more.” Yesterday, regional banks sold off after Zions Bank took a $50 million write off. This is what we were going to be watching for this week as banks released earnings.

The XLF bounced off of the 100-day MA earlier in the week and it challenged the 50-day MA Wednesday. Yesterday we saw a huge reversal and it obliterated the 100-day MA. Banks have hit the Fed’s overnight repo window to the tune of $14+ billion in the last two days and these are extreme levels. They do this when they need cash and it is a sign that liquidity could be an issue.

The VXX spiked and it has remained elevated. Futures were down 60 points overnight and they have rebounded. Global markets were weak so there will be a stiff headwind today.

In the last two weeks we’ve seen intraday market declines that featured stacked long red candles on heavy volume. We haven’t seen that in months and it is a sign that sellers are getting more aggressive.

It doesn’t matter where you look, this is a House of Cards. Consumer credit card delinquencies are on the rise, states are running huge deficits and our national debt is spiraling out of control. Politicians can’t come to terms and the government shut down continues. This is going to impact economic growth and we don’t have any data to help us gauge the current state of activity.

The global picture is just as dire. China is in turmoil, Japan said that it is in worse shape than Greece was on 2011 and French yields are spiking as their government can’t reach austerity agreements. Russia could completely collapse. They have interest rates of 20% and their revenue (oil) has been disrupted.

The issues are deep across the entire credit spectrum.

This all sounds dire, and it could be. Right now I am focused on today and the next few days. I believe that any bounce will eventually produce a great entry point for shorts and that is how I plan to trade.

It is also important to note that even though credit issues are surfacing, the market does not go straight down. We are likely to hear that the Fed will cut rates, that trade negotiations with China are going well and that politicians are making progress on a CR. Asset managers want to support the market into year end and bullish seasonality will start in a week.

This is not a time to go “gonzo” with shorts. Bull markets die hard and we are seeing a nice rebound this morning. What all of this does mean is that we are likely to see two-sided market action. The days when dips were immediately scooped up are gone. The dips will not be brief and shallow, they will pack some punch.

Reduce your longer term swing exposure and prepare for some big intraday moves. This will be a good time to day trade.

Yesterday’s range is support and resistance.