The global market has reached the 5th stage of grief. And with acceptance, comes the opportunity for 586% gains.

“Less Bad Than Feared.”

That was the best headline WSJ’s MarketWatch could gin up last Friday morning.

The gist of the article referred to the fact that U.S. index futures had been trading limit down in the wee hours of the morning, indicating that the Dow would probably drop some 1,000 points at the open.

Fortunately, the market only fell 500 points. What a relief!

Wake Me When It Hits 700 Points

Could you ever have imagined we’d arrive at a point where 100, 200, heck, even 500-point moves could be written off as small beer?

The fact of the matter is, it’s gotten as bad as many of us feared it might. And it will, in all probability, get worse before it gets better.

Not only are we in the U.S. well ensconced in a recession (all efforts at denial aside), the recession is spreading globally.

It’s a Shrinking World After All

Ministerial data shows that Great Britain’s GDP shrank 0.5% in the third quarter – the first such contraction since 1992.

France's state statistics agency, INSEE, has forecast that GDP will drop by 0.1% in the third and fourth quarter after dipping 0.3% in the second quarter – a downward trend the budget minister reluctantly called a “technical recession.”

In Germany, fingers are crossed hoping for a mere 0.2% growth in 2009. Japan is looking at minus 2.4% growth year-over-year, and minus 3% in the second quarter.

China’s 20% growth rate, meanwhile, has been cut to a mere 9%. While this might not seem like a recession in Western terms, it could very well be disastrous for Beijing’s plans of a permanent boom economy.

The Fifth Stage of Grieving

The global breadth of our crisis has finally dawned on investors, who are now pulling cash out of stocks pretty much around the globe. And you know what? That’s probably a good thing. At least we’ve all moved through the various stages of grief, arriving finally at acceptance.

Once we accept that we’ve shot ourselves in the foot – that maybe the central banks offered us too much cash at too cheap a price – we can begin to look for a way out of this mess.

There are clues as to the way out, and tactics we can execute now so as to insure we survive to get there. One such clue can be found in the price of gasoline.

Euro Down… Dollar Up (Sorta Kinda)… Oil Down

Due not to any genuine increase in the U.S. dollar’s real worth, but rather to the overdue collapse of the Euro and British pound, oil as priced in dollars has come all the way down to around $65/barrel. This has pushed the average price for gas at the pump down to a mere $2.91. That’s still some nine cents higher than this time last year, but more than a dollar lower than just a few short months ago.

Now many industry analysts point out that October is a traditional trough in prices. What’s more, OPEC is already attempting to throttle crude outflows in an attempt to stymie this trend.

Meanwhile, students of the dollar (myself included) warn that the greenback’s current ascendancy may very well be short lived. We are, after all, pumping out billions of extra dollars while GDP is receding. By definition, this diminishes the value of each and every individual dollar out there.

All this would seem to indicate that oil ought to come back up in the mid- to long-term. But that is just educated speculation. In the meantime, U.S. consumers have just received a little $125 billion “pre-Halloween” treat. What’s more, for as long as oil and gas do stay this low, it is a gift that will keep on giving.

Why Isn’t Everyone Celebrating?

Changes in gasoline prices impact our individual pocketbooks in tiny $10 increments. Just take a gander at how long it took for energy costs to tank the economy.

Prices at the pump began their climb back in January of 2002. By 2005, they had nearly trebled and weren’t done yet. But it took until October of 2007 for all those individual $10 hits on our pocketbooks to aggregate into a trillion dollar knife capable of puncturing the housing bubble, tipping the economy toward recession, and tanking the stock market.

There is every reason to presume a similar lag on the way back up. Folks are in one terrible hole right now, and it’s quite likely that energy savings will go toward paying down debt and buying groceries for quite some time before we start ogling 50” TV screens and top model Toyotas again.

So we have two facts on our plate. It is a recession (and a bad one at that)... but it won’t last forever (they never do).

The 586% Solution

How can we preserve capital while we wait for positive changes to gain traction? This brings me back to the tactic I wrote of earlier. In fact, I’ve been pounding the table about it for weeks (actually years) now: defensive put option contracts.

Back in August, I asked any and all to buy defensive puts against the Diamonds, the ETF that stacks up the entire Dow into a handy bundle. At the time, those puts were available for $585 a contract.

Today, as recession stalks the globe and the Dow flirts with a new five-year low, these contracts are trading for $2,975. That is a gain of 586%.

What’s more, that gain is hardly unique. I could throw a dart at my WaveStrength Options Weekly readers’ active portfolio and come up with any number of similar gains. At last count the list features seven contracts with gains in the 200-400% range.

I do not say this to brag. I say this to demonstrate the absolute necessity of adding this technique to your arsenal if you wish to survive to the next up cycle!