It was an ugly day for the market as the Dow officially fell 394 points to close at 12,209. Oil was the main culprit once again as it soared over $11 to close just under $140 a barrel. A weak unemployment report didn’t help matters either. The Labor Department said the U.S. unemployment rate jumped to 5.5% in May from 5.0% in April. Wall Street was expecting a slight increase to 5.1%. Add it all up and it spelled trouble from the start. In fact, the three major indicies didn’t even make it into positive territory at all. Along with the Dow, the Nasdaq (2,474, down 75) and S&P 500 (1,360, down 43) both fell 3% as well.
I’ve been talking about key support levels for a couple of weeks now and here is a reminder: “For the Dow, a break below 12,000 could lead to 11,750. If this level is broken look out below. The S&P 500 would need to fall to 1,325 then 1,275 for the bears to start coming out in force. The Nasdaq has lower level support at 2,375 followed by 2,275. A break below 2,200 could spell trouble.”
Today’s decline was bad but if you’ll notice, the market has become very volatile which is a great thing for options traders. We’ve seen the Dow this week alone have four triple digit days of gains and losses. And expect more of the same as oil will likely continue to rise as well as the nation’s unemployment rate. Want reality? The unemployment figures were the largest gain in the government’s unemployment reading in more than 20+ years…
In early May when the market was rallying to new highs I mentioned the VIX (Chicago Board Options Exchange’s volatility index) was under 19. The VIX (^VXN, 26.04, up 3.19) soared 14% as the market plumetted. Tradionally, if the VIX is at 30 or more then it means the market is nervous and it was crystal clear that this was the case with investors today.
So are we headed lower? I could take a guess a say “yeah, we’re headed lower” but no one really knows what the market will do Monday. As far as the VIX goes, it was at 35 on March 17 when the S&P 500 stood at 1,276. I would imagine if either of these numbers are reached then, yes, we are headed even lower.
Rick Rouse
Rick@OptionsMentoring.com