9:00am (EST)
September is quickly becoming a month to remember as the volatility continues.
Yesterday’s action was all about the bears and the panic on Wall Street had a snowball effect that turned into an avalanche. The bulls had no chance given the global selloff before the open and the dismal economic news didn’t help matters. The good news is the bulls were able to hold resistance although key levels were violated that could lead to more selling pressure.
The Dow fell a whopping 391 points, or 3.5%, to finish at 10,733. The index traded to a low of 10,597 intraday and was unable to hold our 10,800 downside target. There is further risk down to 10,250 if the next wave of support at 10,600 is busted but count on Dow 10K by the end of September or early October if it is. The bulls will try to make a climb back towards 11K before the weekend hits and will need to reclaim 10,800 first.
The S&P 500 got crushed for 37 points, or 3.2%, to settle at 1,129. The index reached a low of 1,114 but it was able to hold the 1,125 area into the close. Although the S&P finished above this level, it opened the door for a test to 1,100 and possibly 1,050. Resistance will come at prior support which is 1,150 then 1,175.
The Nasdaq was punished for 83 points, or 3.3%, and closed at 2,455. We mentioned yesterday if 2,500 didn’t hold there could be a test down to 2,450. Tech traded to a low of 2,420 which puts 2,400 and 2,350 into play on a continued selloff while 2,500 is now short-term resistance.
To put things in perspective, last week the bulls had a clean sweep which was the best 5-day pop in 2-years, to push the top of the current trading range. This week, that rally has been erased by the bears on a 4-day selloff which could turn into 5 depending on today’s action.
The trading range from August is still intact, for now, and it’s too early to say if we have seen the market’s lows. Our best guess would be “no” because of yesterday’s signals but if current levels hold today and on Monday then the market could rebound once again. If the bulls can’t hold support then the bears could be pushing new 2011 lows if traders sell ahead of the weekend.
We have a lot to cover in our Members Area as we have added a few more new ideas for our Watch List and like we said yesterday, the next 3 months could be explosive. If the market holds and trades back to the top of the range, we will use call options. If the bears crack another layer of resistance, we will use put options. We also mentioned we might use strangle (and straddle) option trades over the next few weeks as we wait for an explosive move either to the downside or upside.
We are also seeing a lot of stocks at 52-weeks lows and there are a lot of bargains out there. There are some quality stocks out there with PE’s in the single-digits and some that are trading below book value. These are the stocks we are targeting to add to our Weekly Wrap and longer-term options for our Daily which we will talk more about later today.
]]>