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In one of the most interesting days in the history of the stock market, the Dow Jones saw it’s largest one day drop since the terrorist attacks of September 11, 2001, and the sixth largest drop in its history, percentage-wise. The sell off was fueled by Lehman Brothers declaring bankruptcy after 158 long years in business, Bank of America acquiring Merrill Lynch, another troubled investment firm, and AIG, the nations largest insurance company, dropping over 60% on the day, and almost 80% in the last 5 trading days, due to growing concerns about their ability to stay in business.
All the market averages are at or damn close to their 2008 lows, and with the Fed rate cut (or no cut) decision coming tomorrow, things should only get more interesting and more volatile as this whole situation unravels. Grab some popcorn because this is going to be one heck of a show. I get the feeling that one day I’ll be telling my grandkids about living through this, if we’re still around by then. Let’s take a look at a few charts.
The Dow is now at it’s lowest closing low of the year after dropping just over 500 points today, on big volume. We still have the July intraday lows that may provide a little downside support, and below that our target will be the 10,600 area from the 2006 double bottom. We may see an oversold bounce tomorrow, particularly if big money likes the fed decision, and on any upside moves our resistance levels will be 11,100, then 11,175, then 11,285.
The S & P is at its lowest levels of the year, on a closing or an intraday basis. We have to go all the way back to 2005 to find any kind of a hint of price support, which looks to be coming in at 1170ish, then again at around 1135.
The Nasdaq has yet to violate its 2008 lows, so we have a little price support close by, which may or may not hold with all the messes out there. The summertime lows are 2165, then the January lows are 2155, but we are looking for an eventual break down below that level.
As one might expect, the financial ETF, XLF, took a tumble today, although it still has quite a ways to go before hitting it’s July lows. We are expecting it to get there at some point, probably sooner than later.
As one might also expect, the VIX spiked up above 30 today. This could mean that capitulation may finally be upon us, and if we get that kind of panic selling it could mean we could get all this uncertainty over with and finally start to hammer out a bottom to work with.
Gold gained a fair amount today, possibly on speculation of a rate cut that would further de-value the dollar. But gold stocks on the whole didn’t rally too much, which could be an indication that people just don’t want to buy stocks at this point, making yet another strong argument that we may finally be getting closer to a capitulation.
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Our portfolio stocks had a very nice day. We came into the day 2:1 short to long, and added another short this morning. As to be expected, all our shorts did very well, and of our two longs, only one looks in danger of getting stopped out for a loss, ININ. We like the way our portfolio is positioned here, and are going to see how this all plays out before adding new stocks to trigger. We are going to lock in some profits on some of these short positions, just in case of a big bounce tomorrow on some fed cut or other news related event, and have put a number of nice setups in the watch lists for intraday trading purposes tomorrow. As mentioned over the weekend, this is not the market to buy something and go golfing for the day, things must be watched carefully, as while this can be a very rewarding market for the nimble and smart, it is unforgiving for the complacent. That said, let’s make some money!
And if you’ll allow me a rant before I go:
I have touched on this in the chat room a number of times recently, but it makes me utterly sick to listen to these “experts” and commentators on cnbc that go on TV and pimp whatever stock, commodity or sector that suits their interest at that moment in time, with blatant disregard for the fact that people actually do trust what they say and put their retirement money, or their children’s college money, or whatever, on what they say. Now I am without a doubt an advocate for doing your own research and taking responsibility for your own action, but being in the line of work that I am in, it really upsets me when I make a bad call and members get hurt on it. It does happen, it’s a part of the game, and while we always do our best to put ourselves in the least risky situations possible, in essence every stock trade has an element of chance to it, and everyone has a trade go against them from time to time. However we try our damndest to own up to a mistake, keep on the course, and move on to find the next winning trade. To be hinest, I hate making a losing pick for The Green Room more than I hate losing my own money, and trust me, I hate losing my own money. Watching this “oh the bottom is in” (which I must have heard a few dozen times last week), followed by the fear mongering, chicken little “the sky is falling” bs that they throw out there to try and get ratings, without even the slightest acknowledgement of a bad call that might have caused some poor retired couple to have to apply for jobs at the local Wal Mart instead of relaxing on a beach sipping a frozen drink makes me absolutely sick. Shame on you CNBC. That’s all for my rant, thanks for listening.
Quote of the Day
I've posted this quote once before, but I thought it appropriate after a day like today.
"The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger - but recognize the opportunity. "
John F. Kennedy (1917 - 1963)
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