8:45am (EST)
Takin’ It Back to Toto time, the bulls had to be thinking of holding the line as they watched the bears run over them for the second straight day. The market got off to a good start on Tuesday, slipped after an unexpected drop in existing home sales, but resumed its uptrend while we were working on our 1pm update.
Stocks were range-bound as we went to press, and we could tell the bulls were struggling to keep a grip on things as a few high beta names started to break down. The bears went to work right before 2pm and had their eyes on one goal…reclaiming the 200-day moving average on the S&P 500. “Hold the line!” was the commander-in-chief’s challenge to the bulls.
Those words fell on deaf ears as the bulls ran for cover.
The Dow surrendered 149 points, or 1.4%, and finished at 10,293 with volume spiking higher as the selling pressure intensified in the final hour of trading. All but two of the Dow’s 30 stocks ended the session in red; Johnson & Johnson (JNJ, $59.16, up $0.03) and Merck (MRK, $35.13, up $0.01) were up pennies. The index fell below the 10,400 level and right near its 200-day moving average.
The S&P 500 tanked 18 points, or 1.6%, to close at 1,095 and below the psychologically critical 1,100 level. The break below the 200-day moving average of 1,108 was more crucial, but the talking heads like to focus on round numbers. We said in Tuesday morning’s update that if the bears could claim this level then it would be huge, and it might prove last week was indeed a “head fake.”
The Nasdaq fell 27 points, or 1.2%, to 2,261 and appears to be headed towards its own battle with the 200-day moving average. The Nasdaq’s 200-day MA is currently in the 2,240-2,250 area. The “flash crash” low was 2,185 and on May 7th the index closed at 2,265. Folks, look at the numbers. We closed below the May 7th low yesterday.
If the Nasdaq fails its 200-day support and closes below 2,240 today then all hell could break loose.
As we head to press, Dow futures are up 41 points to 10,274 while the S&P 500 futures are higher by 4 points to 1,094. The Nasdaq 100 futures are showing a 9 point pop to 1,887. Today’s market moving event will come at 2pm when the Fed gives us an update on interest rates.
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