9:00am (EST)
The technical damage that was done on Tuesday followed the market into Wednesday as the major averages tested lower support levels once again. The bulls didn’t have much to work with from the start and the negative headlines from around the globe continue to force some investors and traders out of the market.
Japan’s nuclear crisis is going to take a while to figure out but because the market is always forward looking, it is reacting to the uncertainty caused by the devastation. Words like “meltdown” and “catastrophe” have spooked investors and they are pulling their assets out of the market first and asking questions later.
Besides Japan, the global tensions from around the world haven’t eased much and the turmoil looks as though it will get worse before it gets better. Oil spiked back towards $100 again but finished under this level although the fighting in Bahrain and Libya continue on.
Gold added $3.30 to close at $1,396/ ounce following Tuesday’s selloff but settled under $1,400, a psychologically important level for investors. Silver prices were higher for much of the session but closed with modest gains, up 38 cents to $34.50/ ounce. Silver is appealing and could outshine gold over the longer-term as it is used for a lot of industrial metal, which will be pivotal in rebuilding Japan.
We said yesterday there was a good possibility that all three of the major indexes had a chance at turning red for the year after the Nasdaq was the first to cry uncle. As a result, the markets are trading right at our near-term targets.
The Dow dropped 242 points, or 2%, to finish at 11,613. The index touched a low of 11,555 which put the index in the red YTD. The blue-chips managed a close above 11,577 so it is still showing a slight gain for 2011 but we said once 11,800 failed there could be a test to 11,500. There is further support at 11,200-11,300 but we are expecting a test down to the Dow’s 200-day MA (moving average) of 11,000 if 11,500 is taken out.
The S&P got smashed for 25 points, or 2%, and closed at 1,256. The index fell just below our 1,250 target intraday and kissed 1,249 before closing slightly above our target. There is further support at 1,230 but we are preparing for a test of 1,175 – also home of its 200-day MA. The index is down 1 point YTD.
The Nasdaq got whacked for 50 points, or 1.9%, and settled at 2,616. The index touched a low of 2,603 and easily took out our 2,650 target by lunchtime yesterday. We said Tech faces further risk down to 2,500 and its 200-day MA is at 2,450. All signs are pointing towards a bear run down to these levels. YTD, Tech is also down.
We are winding down towards March options expiration and although we haven’t been enjoying any new trades in recent weeks, we have profiled quite a few on our Watch List. The good news is that we are reaching the BEST time to initiate new trades because by next Monday, the bulls will either be putting up a fight or we will be seeing a trend change.
We will have room for up to 10 new trades and some of them might be strangle or straddle option trades. We are currently showing our new subscribers how these trades work by profiling a few of them on our Watch List. A current strangle option trade on the S&P 500 would have already locked in 20% gains no matter what happens to the market. For those who pushed the trade another day, they are up nearly 50%.
These types of trades reduce your exposure to the market and can easily make double-digit returns in volatile times. In fact, we are currently profiling a trade on Freeport-McMoRan (FCX, $50.29, down $1.14) which might become official once we see how the stock opens this morning.
If we do decide to add it to our portfolio, we will send out a Trade Alert. We may also send out a Trade Alert for our Weekly Wrap as we look to take advantage of one blue-chip stock that has been punished this week.