We have so many puts piling up that the bears can't be right forever, but that doesn't mean they can't do some damage while they're in control. We're getting the retest of the lows we were looking for, but it's coming a little faster and harder than we'd like, so we'll look at a possible worst-case scenario tonight. We had another 90% downside volume day on the NYSE today, the third in this decline; that kind of panic selling will eventually produce a lasting bottom. Let's assume for a moment that the market is in a three-wave correction off the highs — a leg down, a rally and then another leg down, similar to what we got last summer. If the Dow's initial 750-point decline is duplicated from yesterday's 12,350 peak, we get a target of 11,600 — just about at last May's peak, which should provide good support, if the Dow's previous all-time high of 11,750 can't stop the selling first. A similar calculation on the S&P arrives at a 1323 target — right about at the May 2006 peak of 1327. It could well be that stocks don't need to go that low; there's been plenty of selling already, coming straight off of new multi-year highs. Let's see how the market handles the recent lows of 12,039 on the Dow, 1274 on the S&P and 2340 on the Nasdaq. 2325 and 2300 are potential supports on the Nasdaq (first chart below), and 2375 is first resistance. 12,000 is an obvious support zone on the Dow (second chart), and 12,200 and 12,250 are resistance. The S&P (third chart) has support at 1360 and 1350, and resistance is 1390 and 1400. Treasury yields (fourth chart) are benefiting from flight to quality while banks (fifth chart) get hammered. Not a sector we want to see leading to the downside, one more reason the lows may not hold.
Sub-prime mortgage worries sent stocks skidding once again on Tuesday, and an outlook from Texas Instruments (Quote) that wasn't quite as bullish as investors were hoping for weighed on the chip sector (Quote).
There wasn't a lot of good news on the day. Rising mortgage delinquencies and foreclosures added to a looming crisis in the sub-prime mortgage market, and a rising Yen stoked Japanese repatriation fears. Weaker than expected U.S. retail fears renewed slowdown worries, and even solid results from Goldman Sachs (Quote) failed to appease investors.
TI lost 2.6% after reaffirming guidance for the current quarter, but the company's lack of formal guidance for the second quarter left open the possibility that it could disappoint when it reports full results next month.
Qualcomm (Quote), J2 Global (Quote) and Technitrol (Quote) gained after raising guidance, while Network Appliance (Quote) and Saba (Quote) fell on their outlook.
Infocrossing (Quote) and Ixia (Quote) fell on their earnings reports.
Wireless Facilities (Quote) fell after delaying its annual report while it resolve stock option issues.
Marvell (Quote) shed 5% on a UBS downgrade.
The Nasdaq tumbled 51 to 2350, the S&P 500 lost 28 to 1377, and the Dow plunged 242 to 12,075. Volume rose to 3.49 billion shares on the NYSE, and 2.27 billion on the Nasdaq. Declining issues led by a 27-6 margin on the NYSE, and 25-5 on the Nasdaq. Downside volume was 94% on the NYSE, and 88% on the Nasdaq. New highs-new lows were 89-77 on the NYSE, and 65-148 on the Nasdaq.
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