The market opened with a bang on Tuesday as Wall Street got excited that Hurricane Gustav did not cause any significant damage or oil-supply disruptions over the holiday weekend. However, by the end of the day the Dow gave up a 250-point gain and ended the session down 26 to 11,516. Like a roulette wheel going from black to red, the market’s fortunes seemed to change on one spin yesterday. It wasn’t really the financial stocks this time around that did the market wrong, the Dow is simply running into very strong resistance at 11,800.
The S&P 500 jumped 25 points to 1303 but ended the day at 1,277, down five. The Nasdaq had gained over 45 points to 2,413 before finishing at 2,349, a drop of 18. Same story here. Both indexes tested serious resistance levels – 1,320 for the S&P and 2,450 for the Nasdaq.
Oil fell to a low of $107 before settling at $109 and change. While this was great news for the market, Gold got absolutely hammered. At one point, the yellow metal was down $40 and ounce but managed to close above $800 ($810.50 to be exact). Still, a $25 drop was worth mentioning. Of course, this was bad news for Gold stocks but good news for us. We have played the Gold bounces before and we are getting close again to playing another one.
September is historically a “not so good” month for the market and October follows. And we all know that some of the biggest market crashes, ever, have happened in October. Anyone remember October 19, 1987, other wise known as “Black Monday”? That was the day the Dow fell over 500 points, or 22%, to finish at 1,739. A crash of that magnitude would be like a 2,500 point drop for today’s Dow. That seems a little far fetched, huh? Now, I’m not saying that the market is going to crash or that we are going much higher from here but it’s important to step back and analize things.
Two years later (October 13, 1989) the market also suffered a “mini-crash” as the Dow fell nearly 200 points, or 7%, to close at 2,569. Back then, the debacle was blamed on a failed leveraged buyout involving UAL Corporation and United Airlines which was its parent company. Also adding fuel to the fire was the collapse of the junk bond market.
We have had a few “crashes” since then but you get the picture. With the mortgage mess the way it is, and the finacial stocks acting the way they are, all I am saying is that anything can happen. That is what makes the market so freakin’ awesome. We could bust through resistance and go on to new highs, stall at current levels and fade, or simply crash and burn. I certainly hope the latter doesn’t happen but as hard as it is sometimes, sometimes you have to “think outside the box.” You always have to remember the market doesn’t care what side of the trade you are on.
This ought to get interesting…
Rick Rouse
Rick@OptionsMentoring.com
