by Sam Collins 10/27/08
With stocks seemingly crashing around the globe and equity futures "down the limit" on Friday, domestic markets were expected to shatter the record declines and even trigger the infamous "market circuit breakers." (Circuit breakers freeze trading at various levels and are designed to restrict panic selling.)
Stocks did open lower, rushing to 6% down by an hour after the opening bell. But then a funny thing happened -- buyers emerged, stabilizing the panic of Europe and Asia and held sellers at bay for the remainder of the session, which closed down by about 3.5%.
Selling was worst in the telecommunication services, energy and industrial sectors.
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The Dow Jones Industrial Average (DJI) fell 3.59% with all of its 30 stocks losing value. Worst hit in the Dow were Bank of America (BAC) off 8.39%, JPMorgan Chase (JPM) down 6.39%, Caterpillar (CAT) 5.9% and General Electric (GE) off 5.16%. But even though selling was not as bad as expected, the Dow is down 23% for the month.
Traders attributed the global selling to margin liquidations in stocks and derivatives. And, according to the Wall Street Journal, "Traders have begun to worry that developing nations, many of whom thrive on commodity exports, will struggle to support their financial systems in the same way that the U.S. and Europe have managed to do."
The Dow Jones Industrial Average (DJI) fell 312 points to 8,379, the S&P 500 (SPX) was off 31 points to 877 and the Nasdaq (NASD) lost 52 points, closing at 1,552.
The New York Stock Exchange traded just under 1.6 billion shares, with decliners ahead of advancers by 5-to-1. The Nasdaq traded 1.2 billion shares with decliners ahead by 4-to-1.
For the week, the Dow was off 5.3%, the S&P 500 was off 6.8% and the Nasdaq was off 9.3%. For the year, the Dow, S&P and Nasdaq are down 36.8%, 40.3%, and 41.5% respectively.
Crude oil (December contract) fell $3.69 to $64.15 a barrel -- its lowest level in 17 months. Crude was also down 11% for the week despite production cuts by the world's major oil producers. The Amex Energy SPDR (XLE) fell $2.90 to $43.65.
The December gold contractgained $9.80 and closed at $724.50 per troy ounce; the PHLX Gold/Silver Index (XAU) closed at $70.86, up $2.93.
What the Markets Are Saying
Worldwide panic selling on Thursday night, followed by relatively mild selling with light volume on the U.S. stock exchanges on Friday, appeared to indicate that the stocks were washed out and the market could be ready for a meaningful rally.
But in a panic freefall, prices could slash through major support as buyers back away and leave the market totally in the hands of those willing to sell at any price. The key support for the S&P 500 (SPX) is at 840 to 866, and Friday's low at 853, along with Thursday's reversal at 858, confirms the validity of that support which is just above the 2002 closing low of 800.
This week we look for another rate cut from the Fed (it meets Tuesday and Wednesday) of at least a half-point, which could trigger a rally. But this morning, it is apparent that the "sell at any price" mode is still alive and well in Asia, so domestic markets will no doubt open lower. When in a freefall, buyers will retrench, so stocks could easily sell right through the low of the 2002 bear market level at 769.
With this in mind, traders are cautioned to take no new positions until the big buying volume appears. But once it appears, an explosive rally could take stocks up a quick 20% or more since there is virtually no resistance above the current trading triangle bounded by the triple-day highs at 985 and the 10/10 low of 840.
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Today's Trading Landscape
Earnings to be reported include: Abaxis (ABAX), Albemarle Corp (ALB), Alberto Culver Co (ACV), Alliance Resource Partners, L.P. (ARLP), American Financial Group (AFG), American Safety Insurance (ASI), AmeriCredit Corp (ACF), Applied Industrial Technologies (AIT), Arch Coal (ACI), Axis Capital Holdings Ltd (AXS), Bank of Hawaii Corp (BOH), BE Aerospace (BEAV) and Buffalo Wild Wings (BWLD).Canon (CAJ), CE Franklin Ltd (CFK), CF Industries (CF), CH Energy Group (CHG), Choice Hotels Int'l (CHH), City Holding (CHCO), CNA Financial Corp (CNA), Coachmen Industries (COA), Crane (CR), Delta Apparel (DLA), DineEquity (DIN), Ducommun (DCO), Eagle Materials (EXP), Education Realty Trust (EDR) and Exelixis (EXEL).
FPL Group (FPL), Haemonetics (HAE), Hanger Orthopedic Group (HGR), Harmonic (HLIT), Hercules (HPC), Humana (HUM), ICICI Bank Ltd (IBN), ImmunoGen (IMGN), Loews Corp (L), Lorillard (LO), Maguire Properties (MPG), Meritage Homes Corp (MTH), Mine Safety Appliances (MSA) and Nidec (NJ).
Old National Bancorp (ONB), Owens & Minor (OMI), Plum Creek Timber (PCL), Rent-A-Center (RCII), Silicom Ltd (SILCF), SL Green Realty (SLG), Sunoco Logistics Partners L.P. (SXL), Superior Bancorp (SUPR), Tidewater (TDW), Travelzoo (TZOO) and Tyler Technologies (TYL).
Universal Health Services (UHS), Veeco Instruments (VECO), Verizon (VZ), Wausau Paper Corp (WPP), Winn-Dixie Stores (WINN), WMS Industries (WMS) and Zoran Corp (ZRAN).
In terms of economic reports, the following are due: September New Home Sales and the October Dallas Fed Manufacturing Production Index.
South Korea slashed interest rates by three-quarters of a percent. Global markets are in freefall, with Hong Kong dropping 12.7%. The yen and U.S. dollar are climbing versus other currencies. The all Street Journal reports that bankruptcy is feared for General Motors (GM) and Chrysler if a merger is not possible.
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Sam Collins can be reached directly at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
Day after day, we've been besieged with how bad the economy really is and, yet, stocks keep plodding their way higher.
Let's not get caught up in bullish fever unless Dow 9,600 and S&P 1,010 are broken with gusto.
CAT has broken through the neckline of a major 'W' bottom and emerged with a new trading target.
The market may have enough strength to challenge huge resistance lines on the DJI and the SPX but not enough to change the intermediate trend from down to up.
Will Santa Stop at Wall Street?
Not likely. The stochastic of the major indices has issued a double sell signal, which could indicate a serious attack on the market's lows is about to occur.
