Market Gets Annihilated Today
The close today was very telling. Last night, I mentioned that I wanted to see how this market closed today to make any further conclusions about this market. The market spoke very loudly today and closed down over 500 on the Dow and almost 60 on the S&P 500. The waterfall decline that I was looking for last week has begun. Today actually marked the highest point drop in the Dow Jones on a closing basis since September 11, 2001. The Dow is extremely close to taking out the July lows while the S&P actually took out the lows from July at 1200 on a closing basis and the NYSE continues to get hammered. Very ugly tape action.
Let me tell you what was troubling for me today. Over the past 8 years, we have seen a handful of occasions where the market opens down with a gigantic gap in the morning. Most of the time, the market will recover most of the those losses or even turn positive for the day. For example, take a look at the bottoms on 8/16/2007, 1/22/2008, and even 3/17/2008. Today was different, the market sold off this morning and made a very feeble attempt at an intraday rally before turning decidedly lower by end of day. In fact, the S&P 500 closed at the low of the day which suggests that people are running for the exits.
The number of net declining stocks on the NYSE was -2900 which suggests panic or capitulation in the works. Volume today was gigantic and comparable to the volume seen at the January, March, and July lows. The put/call ratio closed at 1.45; another sign of massive fear in the market. This is an extremely high closing value. The VIX, or volatility index, closed near 32. The prior three spike lows in the market that we mentioned above came in with readings at 35 to 36 region. We should get that tomorrow; yet another sign of fear in the market.
Even though we are looking at 500 + points on the downside today, the selling was somewhat orderly and that gut feeling of capitulation was just not there. In reality, I want to see a major intraday price reversal accompanied by extremely heavy volume to even consider looking to go long this market. That may happen tomorrow or it may happen in October. Until I see that, I will not look to buy into this. I will be keeping a close eye on the previous range of support that we mentioned in the 1165 to 1182 region. This zone is almost guaranteed to bring in price support in the market. The NYSE has huge support at the 7400 region which is now very close as well. I expect another day that feels like armageddon and that should provide a strong reversal. If not, we continue to wait until we see signs of a reversal.
Today, AIG killed the Dow by dropping nearly 60% on the close. AIG is now trading at 5 dollars. Needless to say, this one will be bought out or will suffer the same fate as Lehman. It has gone to far and there is almost no chance that they will come out of this on their own.
The bank stocks were hammered today but still hold firmly above the lows put in from July. Now, think about this. Since the July bottom, Lehman, Merrill, and AIG have basically been destroyed. Goldman is now cracking, Washington Mutual's credit rating was downgraded today and the world banking system seems to be falling apart, yet price is still holding up. This is exactly what we want to see.
Stay tuned for my update tomorrow. From where I sit, the message of the market is that it still wants to head lower. Trade safely.
