Stocks were sharply lower again yesterday, as the global economic impact of the Japanese disasters hit the markets. So many industries are affected by the shutdown of suppliers of electronic components that every sector in the S&P 500 had a loss. 

Daily Stock Market News

Dow: -138 points at 11,993
S&P 500: -15 points at 1,282
Nasdaq: -34 points at 2,667

Volume and Breadth

NYSE: 1.3 billion shares traded; decliners ahead 3.5-to-1
Nasdaq: 664 million shares traded; decliners ahead 3.1-to-1

Futures and Related ETFs

April Crude Oil: -$4.01 at $97.18 per barrel; Energy Select Sector SPDR (NYSE: XLE) -57 cents at $74.95
April Gold: -$32.10 at $1,392.80 an ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) -2.1 points at 204.21

What the Markets Are Saying

Veteran traders had found it hard to believe that the full impact of Japan’s natural disasters was fully absorbed by the mildly negative decline on Monday. And their hunch was proven correct when, before yesterday’s opening, traders heard of a possible nuclear fallout from Japan’s damaged reactors and they responded with massive selling. The Dow Industrials experienced their worst opening in years as the index gapped down by almost 300 points.

But almost immediately stocks began to struggle higher as several buy programs kicked in, and the remainder of the day was spent trying to close the huge hole in trading established on the opening. By the close, over half of the loss had been overcome. But the resulting technical damage to the stock market is devastating.

The first lines of defense for each index were immediately destroyed as stocks plunged toward the next area of support at around December’s breakout levels. In the process the indices sliced through not only their respective 50-day moving averages, but the substantial support established in the December-January days of back-and-forth trading and the six-month uptrend lines. And each has established a new low in March below the February low.

The failure of the December-January support zones to hold the decline created a shift in the intermediate-term trends. The stock market’s trend is now down for both the short and intermediate terms, and that applies across the board. And the only way to reverse this destructive downturn is for the indices to close above their respective 50-day moving averages. 

The market leader, the Nasdaq, fell a devastating 3% — plunging the index to slightly below the Dec. 10 breakout high at 2,639. But the index climbed back for most of the day, and at the close was off only 1.3%.

The big opening gap with very high volume brought the total volume for the day to over 1.3 billion shares on the NYSE and spread throughout the other markets. And on balance volume was led by sellers by a ratio of over 6-to-1. Again, another day of heavy volume on a declining day is convincing proof that institutions are still selling.

And stocks weren’t the only assets that closed in the red yesterday. Gold, crude oil and grains were hard hit as investors scrambled for liquidity in the face of calls for additional margin capital. This makes these markets prime targets for bargain hunting since they are traditional safe havens in times of economic distress.

The reasons should now be clear to all of our readers; since January, this column has been cautiously bullish. It is because experience has taught me that the biggest, nastiest market shocks occur when stocks are overbought and optimism is at a high. It only takes one nasty, unexpected event to shatter the dreams of the young bulls. Those who were in the market on 9/11 know of the pain of the loss of friends who can never be replaced and capital that takes years to recover. As the saying goes, there may be many young bulls, and many aggressive bulls, but after Monday’s losses and Tuesday’s collapse, there are fewer young, aggressive bulls.

For one energy stock to buy now, see the Trade of the Day.

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.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.