by Sam Collins 10/10/08
After Wednesday's licking, it was refreshing for investors on Thursday to have some good news that got a favorable reaction from the market.
IBM started things off on the right foot by beating analysts' Q3 estimates by 4 cents and that, along with more foreign rate cuts and comments from the Treasury Department that more capital may be injected into banks, led to a rally from the opening bell. The Labor Department also reported a decline in weekly jobless claims.
But after a brief opening rally, selling hit the floor just as Standard & Poor's threatened to downgrade General Motors (GM). That and lower crude oil prices, along with an OPEC threat to cut production, resulted in a rush to sell so that by 11 a.m. Eastern, the Dow (DJI) had given up all of its early gains and was down more than 200 points.
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The markets seemed to stabilize for much of the day, but then with renewed selling in the crude oil futures pits, an avalanche of liquidations hit the trading floors of the major equity exchanges.
At the close of the anniversary of the day the market hit its all-time high, the Dow Jones Industrial Average (DJI) closed at 8,579, off 679 points, and down almost 40% in just one year. The S&P (SPX) 500 was off 75 points to 910 and the Nasdaq (NASD) fell 95 points, closing at 1,645.
The New York Stock Exchange traded more than 2 billion shares, with decliners ahead by 10-to-1, and the Nasdaq traded 1.4 billion shares, with decliners there exceeding advancers by 5-to-1.
The November crude oil contract closed at $86.59 a barrel, down $2.36, and the Amex Energy SPDR (XLE) fell $7.61 to $45.25.
Gold for December delivery lost $20 and closed at $886.50, and the PHLX Gold/Silver Index (XAU) closed at $114.48, down $6.99.
What the Markets Are Saying
The average bear market decline is just over 30% and yet, as mentioned above, the Dow (DJI) is now down almost 40% from its high, the S&P 500 (SPX) is off 37% and the Nasdaq (NASD) is down 42.5%. Volume has been very high, and the most widely followed sentiment indicator, the CBOE Volatility Index (VIX), scored an astounding all-time high of 64.92.
Just below Thursday's closing prices are the last really tangible support zones of the major indices: The Dow (DJI) had a "head-and-shoulders" pattern target of 9,574, which gave way on Thursday, and the next support is at the old bear-market trading zone of 7,178 (market low) to 9,076.
For the S&P 500 (SPX) there is a "head-and-shoulders" pattern target -- not yet penetrated -- at 864 and the support zone is at 768 to 960. The Nasdaq (NASD) has no clear "head-and-shoulders" pattern target and the next support zone there is at 1,108 to 1,535.
The public is now at the panic stage -- willing to sell into the decline and take whatever they can for their stocks. All the marks of a classic and final capitulation are now in place except for a big-volume reversal back up. We may very soon see a classic market bottom and reversal.
And here is more evidence that a bottom is near -- the American Association of Individual Investors bullish/bearish numbers are in, and the bears have scored a record-shattering 60.84% compared to the high bearish reading at the very bottom of the 2002 market of 54.8%.
Get ready -- we're almost there.
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Today's Trading Landscape
Earnings to be reported include: Audiovox Corp. (VOX), Emmis Communications (EMMS), General Electric (GE) and Oil-Dri Corporation of America (ODC).
The following economic reports due: August Trade Balance (the consensus expects negative $58.2 billion) and September Import Prices (the consensus expects negative 2.7%).
Markets in Asia and Europe have smashed through prior lows with Japan's Nikkei down 9.6% and the FTSE down 7.9% at midday. General Electric (GE) reported Q3 of 45 cents a share, which is in line with prior expectations.
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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.
