9:00am (EST)
We knew Monday night when we were doing our option training video that the bulls were in for a rough outing on Tuesday. After 3-weeks of solid gains and a 3-day weekend, the “warning” signs were there for a pullback and yesterday the market got one as the bears took advantage of the social unrest and geopolitical events from around the world.
We knew on Friday when the S&P 500 stopped short of 1,350 and the Nasdaq closed just below 2,850 that the only thing that could prevent the market from going higher was the turmoil in Libya and the Middle East. Egypt’s protests, which seem like yesterday, made the market antsy but Libya’s chaos has made a lot of investors nervous.
The market made a nice rebound off its opening lows and had cut the losses in half before Libya’s leader, Moammar Gaddafi, threatened to suspend oil supplies from the country. This caused oil to soar even higher as Libya also controls the biggest oil reserve in Africa. Crude surged 6% and closed at $95.41, up $5.70, for the day.
The Dow fell 178 points, or 1.4%, to finish at 12,212. We said to look for support at 12,200 and the index made a low of 12,176 before finishing just north of our first downside target. The bears will now take aim at 12,000 and this is where things could get serious as the bulls look to rebound or the market takes a turn for the worse.
The S&P got spanked for 38 points, or 2.1%, and settled at 1,315 after touching a low of 1,312. We said to watch for 1,325 to hold with a trip down to 1,300 if this level was breached. There was a little support at 1,311 but we are preparing for a possible test of 1,300.
As for the Nasdaq, Tech took the biggest blow as the index tanked 77 points, or 2.7%, and closed at 2,756. The Naz traded to a low of 2,752 which was just outside of our first downside target of 2,750 and then 2,700.
From time-to-time we often talk about the CBOE Market Volatility Index (VIX, 20.99, up 4.44) which was up nearly 25% yesterday. The index is at its highest levels since November but was at a multi-year low just last week. When we said volatility was going to be picking up, we were serious as a heart attack.
To put things in perspective though, we know emotions can take toll on an investor during these wild market swings but we had our downside targets outlined. Yesterday’s pop in the VIX nearly matched the spike we got less than a month ago but the market continued higher.
Back to Gaddafi…who has been in charge for 4 decades (yes, 40 years) and is not going away quietly. These types of events can cause panic selling but we knew where the pullback would be so we aren’t too worried, yet. However, this dude is a nut case and some say he will fight to his death so the news out of this region could get worse before it gets better. However, we think Gaddafi is sweating bullets and he will eventually succumb to the pressure.
The good news this morning is that futures are up despite Hewlett-Packard (HPQ, $48.23, down $0.44) beating earnings but offering a weaker-than-expected forecast. Shares were hammered in after-hours trading last night, falling 12% to under $43. Although the company’s recent acquisitions are providing some good synergies, there is no need to go over their numbers as it is clear they overpaid for some of them and they miss their old CEO, Mark Hurd.
As we head to press futures look like this: Dow (+27); S&P 500 (+3), Nasdaq 100 (+8). Subscribers, check the Members Area for the updates.
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