by Sam Collins 09/30/08
The U.S. House of Representatives failed to pass the President's rescue plan Monday, and the market plunged 8.8% (S&P 500) for the worst one-day percent loss in 21 years. The emotional selling in the face of extreme uncertainty regarding the near-term future of credit markets sent all 30 of the Dow Industrial (DJI) components lower, with deeper losses in the financial stocks.
Adding to the crisis atmosphere was the purchase of Wachovia (WB) by Citigroup (C) announced during the weekend. Before the opening Monday, European and Asian markets were much lower, with European markets unsettled by a $16.4 billion rescue effort for Fortis, a Belgian-Dutch bank, by Belgium, Luxembourg and the Netherlands.
Investors sold off stocks and ran to Treasuries for safety. Thus, the 10-year note rose two points, dropping its yield to 3.61%, and the 30-year Treasury rose four points for a yield of 4.15%. The one-month Treasury bill fell to a yield of just 0.05%.
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Meanwhile, the Fed said it was increasing the size of its dollar-swap arrangements to $620 billion from $290 billion with nine other central banks to ease strains in the interbank market. This is the market where commercial banks lend short-term funds to each other.
Yesterday was also the largest drop in the S&P 500 (SPX) since 1987 (8.79%), and the Nasdaq Composite (NASD) fell 9.1% with broad losses in all sectors. Apple Inc. (AAPL) was off $22.98 to $105.26.
At the close, the Dow Jones Industrial Average (DJI) was off 778 points at 10,365, the S&P 500 (SPX) fell 107 points to 1,106 and the Nasdaq was off 200 points closing at 1,984.
The New York Stock Exchange traded more than 2 billion shares, with decliners ahead by 15-to-1. On the Nasdaq, 1.1 billion shares traded. Decliners there were ahead of advancers by more than 6-to-1.
The November crude oil contract fell $10.52 to $96.37 a barrel and the Amex Energy SPDR crushed its January/September double-bottom by closing at $59.65, down $8.05.
The December gold contract continued its crisis-based rise, gaining $16.40 and closing at $894.40 an ounce. The PHLX Gold/Silver Index (XAU) fell $5.28 to $133.01 which is just above support at its 20-day moving average.
FAST is now consolidating and recently flashed a buy signal from our internal indicator.
Options Expiration Adds Volatility
The opening looks to be higher but today is options expiration day, and anything could happen.
Chances are high stocks will sell off further, but be alert for a dead-cat bounce after such a dramatic breakdown.
Traders and longer-term investors should sell any new positions at the first opportunity and short ETFs on a temporary recovery in the market.
CAT, the blue-chip of its industry, is the first to attract attention when it's time to dress up a portfolio.
