9:00am (EST)
The bears continued to pressure the bulls on Monday as a choppy session favored short-sellers into the close. Selling pressure intensified in the final hour of trading as all three of the major indexes ended the day in negative territory.
There wasn’t much economic news yesterday and we mentioned the weakness in the euro once again. The Financial sector took a beating after Goldman Sachs (GS, $138.68, down $3.57) was issued a subpoena by the Financial Crisis Inquiry Commission. Shares still face headline risk and there might not be a bottom until the stock falls to $120.
Bank of America (BAC, $14.83, down $0.82) fell over 3% after Wall Street found out the bank will have to pay a little over $100 million to settle federal charges. Two if its Countrywide Financial units were found guilty of charging extra fees to homeowners who were behind on their mortgage payments. There is support here in the $14 area but a drop to $12 could be in the cards.
As a result, the Dow back peddled 115 points, or 1.2%, to finish at 9,816. We said in our Weekly Wrap on Sunday night to look for 9,800 and then 9,500. So far, so good.
We also said to watch the 1,050 level and that was exactly where the S&P 500 ended at. The index fell 14 points, or 1.4%, and the magnet was strong enough to pull it there right before the closing bell sounded. Wow. There are a lot of investors who will start to cover at these levels and this was the clue we were watching for all day yesterday.
The Nasdaq, however, took the worst beating as it declined 45 points, or 2%, and settled at 2,173. There will be some support at 2,150 but we are targeting 2,050 as confirmation that we head below 2,000. With the S&P and Dow already at our first wave of targets, we expect the Nasdaq to join them shortly in dramatic fashion.
The CBOE Market Volatility Index (VIX, 36.57, up $1.09) added 3% although it’s down from a recent high of 48 which was set back in May. The VIX measures “fear” on Wall Street and is one of the indicators we like to follow to try and get a read on the market. For our new subscribers, high readings mean that Wall Street is nervous and bearish. A low reading indicates calm and the Street is bullish. If we get a continued sell-off then look for the VIX to blow past 50.
We were hoping for a continued selloff and yesterday’s 1% decline was significant. On Friday, we talked about a lower Friday/ Monday close and what you are seeing now is nothing compared to what we could see. For you bulls, we hate to be Debbie Downer but the technical levels on this market are terrible.
We doubt we see a “double dip recession” or anything that dramatic but the bears clearly have momentum and there are a number of opportunities in the market right now that look good. Naturally, everyone is running to Gold right now which added 2% and ended at $1,240/ ounce yesterday. Gold could continue its winning ways but we still think are better sectors to make money that aren’t as crowded.
Futures are pointing towards a slightly higher open (Dow futures, +45) but in bear markets you usually see strong opens followed with weak closes. We saw it yesterday and we should see it today. Subscribers, check the Members Area for the trade updates.
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