By Bryan Bottarelli

A day like today is a perfect example why Adam and I are adamant that everyone own a protective downside hedge position. This is a play that we've termed “Winter Storm Warning.” And I'm not talking about the ten inches of heavy, wet snow that I broke my back shoveling this morning -- I'm referring to the recent trading activity on the Dow.

Here's a quick review…

This past Monday (which the media has now dubbed “Cyber Monday”), the Dow dropped a full 156 points. The following three days saw a slight attempt at a rebound rally.

But as I write today, the Dow is down another 70 points. The two downside days that bracketed this week of trading are perfect illustrations of why everyone should be holding our Storm Warning puts. In fact, today's downside catalyst is causing some market pundits to break out the “R” word -- something that Adam already covered in these pages earlier this week.

You see, today's Dow decline is thanks to manufacturing activity that declined in November. The Institute for Supply Management said its index on manufacturing fell to 49.5 -- while most economists had been expecting a reading around 51.5.

This is significant because any reading under 50 indicates that the manufacturing sector is contracting… prompting renewed discussions that the Fed's December 12 meeting could end with a rate cut. And that's where we get the dreaded “R” word.

According to Hugh Moore, a partner with investment firm Guerite Advisors, "This is just additional confirmation that the economy is not only slowing but quite possibly going into a recession."

Supporting this statement is the fact that an ISM number below 50 has preceded every U.S. recession since the 1960's. We all know that the housing and auto industries are weak -- throw manufacturing into the mix and it's not a farfetched idea.

That's why our Storm Warning puts are more important than ever.