9:10am (EST)
The bulls got rocked on Thursday following a selloff around the globe as Europe’s troubles made headlines again. Many of the overseas Banking stocks were showing losses of 7%-8% as financial institutions face tighter liquidity and are trying to raise cash which played right into the bears hands. News that an unnamed institution borrowed nearly $500 million from the European Central Bank (ECB) caused panic and fear which quickly spread to Wall Street before the opening bell.
Of course, the news on this side of the Atlantic wasn’t that rosy either which only added to yesterday’s debacle. Financial stocks were hit hard as Wells Fargo (WFC, $23.72, down $1.16) and Bank of America (BAC, $7.01, down $0.45) fell 5% and 6%, respectively. Goldman Sachs (GS, $113.14, down $4.11) dropped nearly 4% and our favorite stock, JPMorgan Chase (JPM, $35.19, down $1.38) also dipped 4%. More on this subject in a minute…
The Dow got smoked for 420 points, or 3.7%, and finished baking at 10,990. The blue-chips traded down to a low of 10,881 and easily finished below the 11,000 mark. The next area of support is at 10,800 and then 10,600 while resistance now becomes 11K-11,200.
The S&P dropped got hammered for 53 points, or 4.5%, and ended at 1,140. The index traded to a low of 1,131 after falling through the 1,150 level which now becomes short-term resistance, followed by 1,175. There is danger down to 1,125 but 1,100 will likely come into play and if it does, it won’t be good.
The Nasdaq fizzled 131 points, or 5.2%, to settle at 2,380. The 2,400 level folded like a cheap lawn chair and failed to hold as Tech touched a bottom of 2,363. This area now becomes resistance followed by 2,425. The 2,350 level will serve as very little support as the bears target 2,300.
We knew when the talking heads started getting comfortable earlier this week and when the major averages failed short-term resistance there could be trouble. However, we warned of the August options expiring today which added to the volatility as traders’ battle over key strike prices.
Back to the Financial stocks, we have gone on record inside our Members Area saying Bank of America could drop to $5. However, we just don’t feel safe buying it at these levels although in 2 years we would bet a Fifty shares will be back above $10. Think about it, in 2008, shares fell to $3-and change but were pushing $20 earlier this year.
Look at JPMorgan which is trading below book value. The stock has a PE ratio under 8 and is near 52-week lows. We know now is not the right time to go bottom fishing but trust us, these stocks are getting so cheap that we are starting to look at LEAPs. We have seen this story play out and once we get the all clear sign, the profits we are going to make on a rebound will be astounding. Check out of 2009 Portfolio and some of the trades we made back then. We are close to getting the exact same setup but we may have to wait a few more months.
As far as today, economic news will be light but here are a few targets we want you to keep in mind. Here is what we said in our Weekly Wrap on Sunday night when we went over the charts for the Dow, S&P 500, and the Nasdaq:
Dow: “We mentioned last week if the 11,000 level (black line, orange circles) failed then there was a chance 10,750-10,500 would trigger. We also mentioned last week we weren’t ruling out a possible drop to 10,000 and the official target for a bear market is 10,250.”
S&P: “Strong support lies at 1,120 (red line) but we have said there is risk down to 1,050 (dark green line). Bear market territory will be on a drop below 1,100.”
Nasdaq: “We mentioned the possibly of 2,350 (red line) triggering if the 2,400 level (black line, orange circles) was violated. We also warned of a trip to 2,200 (green line, red circles) if support doesn’t hold and an official bear market for Tech would occur on a drop below 2,300.” (END)
Futures are pointing towards a lower open as we head to press. Dow futures are down 162 points to 10,855 while the S&P futures are lower by 18 points to 1,126. Nasdaq futures are showing a decline of 27 points to 2,055. Subscribers, check the Members Area for the updates.
]]>