Fear gripped the markets again yesterday, with a focus on Europe and its inability to solve the southern countries’ debt problems. In the final hour of trading, stocks plunged following a report by Fitch that U.S. banks could suffer from large holdings in Europe. And late selling accelerated after news that the Congressional joint super-committee had stalled in its efforts to reduce the deficit by the Nov. 23 deadline.
At the close, the Dow Jones Industrial Average had fallen 1.58%, the S&P 500 was down 1.66%, and the Nasdaq was off 1.73%. The NYSE traded 917 million shares, and the Nasdaq traded 533 million. Decliners outnumbered advancers by a ratio of 3-to-1 on both exchanges.
By closing below its 20-day moving average, the S&P 500 has formed a small triangle, which is pinching prices and may lead to an immediate challenge to the support line at 1,220. Meanwhile, a bear signal is in effect from the MACD internal indicator.
The NYSE Composite is an index that I refer to when the market outlook is uncertain. It includes every stock traded on the NYSE, and so it is considered a valuable resource for viewing the behavior of a wide range of stocks.
It, too, has flashed an MACD bear signal, but in addition it has formed a right (descending) triangle instead of the symmetrical triangle on the S&P 500. The significance of a right (descending) triangle is that it almost always breaks to the downside whereas the symmetrical triangle usually breaks in the direction of the major trend. In the current market both indications are bearish, which makes now a perfect time to use options to profit.
The CBOE Volatility Index (VIX), or “fear index,” which measures the sentiment of options traders, rose to 33.51 putting it squarely back into the negative zone for the market.
Conclusion: Yesterday’s triple-digit decline on the Dow is bearish for the market. On Oct. 24, the Dow closed at 11,914. It has been up 10 of 17 trading days since, with 7 of those 10 days with triple-digit gains, the largest of which was 339 points. And it was down 7 of those 17 days, with 5 of the 7 days being triple-digit declines; the largest was 389 points. It was up a total of 1,486 points and down a total of 1,494 points ending yesterday at 11,906, just 8 points lower than where it started. (Thanks to Sy Harding of www.streetsmartreport.com for the concept — I’ve updated his numbers.)
That’s a lot of trading points and an enormous amount of investor stress to result in a loss of 8 points. It is this stress that has led to investor fatigue and a loss of momentum as the public withdrew from the markets — thus the low volume on both advancing and declining days. And since it is the public that adds liquidity to the system, we can expect more of the same with a bias to the downside.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
