It was another very ugly day on the Street and the market broke some key levels in the process. It started out with the futures down sharply before the opening. The market opened lower, snapped back to resistance, and then sold off into the lunch hour.
Then we began a steady climb back up to test the morning rally highs. We got right to it on the Nasdaq 100, a little below it in the S&P 500 just after 1 o’clock, and then the market came down and retested the lows, making higher lows, and then late in the session the market snapped back pretty sharply and brought the indices well off the lows.
But net on the day, the Dow was down 127, although that was about 58 points off the low, but it did close under 10,000 at 9990. The S&P 500 was down 11 ½ to 10.87, but that was about 8 points off the low. The Nasdaq 100 was down just 9, but the Composite was down nearly 22, and the SOX Index managed a gain on the day, up 1.89, and that really prevented the Nasdaq 100 from being much lower.
The technicals were extremely ugly, especially on the NYSE where advance/declines were about 9 to 1 negative today. Up/down volume was about 6 to 1 negative with a total of about 1.9 billion traded, with about 1.6 billion of it to the downside.
Nasdaq was 25 to 7 advance-declines to the negative side, and the up/down volume was a half billion up, 1 1/3 billion down, on a total of just under 1.9 billion as well.
It was a very negative day across the board for the most part, other than some high-tech stocks, particularly in the semiconductor group, which may be telegraphing that they’re washed out and want to really and lead the market back up.
On my personal board there were mostly fractional changes, except for Ariad Pharmaceuticals (ARIA), which took it on the chin, down 1.26. Other than that nothing on my board was up or down as much as a point.
The security stocks were off today. MAGS was down 87 cents, MACE 46 cents and VISG down 61 cents. On the plus side in that group, IPIX was up 15 cents. That was one of our Charts of the Week.
Stepping back and reviewing the overall patterns, the market broke down through important key support in the 1405-10 zone on the Nasdaq 100 and plunged as low as 1385 before snapping back and backing and filling into the close.
We still remain above the March lows on the Nasdaq 100 but I believe the Dow and S&P have taken out those lows and were not able to snap back above them by the close.
So even though the jury is still out and we could possibly still go lower, we’re at very extreme levels on some of technical indicators and oscillators,(McClellan Oscillator at -365)!!! put/call ratios, etc., and I fully expect a strong snapback rally tomorrow.
Stocks are expected to bounce higher after suffering three consecutive days of losses. Since Wednesday, the Dow Jones Industrial Average ($INDU) has plummeted 320 points and dipped below the psychologically important 10,000 level. During that time, the Nasdaq Composite Index ($COMPQ) has fallen 60 points, or 3.1%. Stocks have been weak amid fears that higher interest rates are forthcoming. However, Tuesday morning, market focus appears to be shifting to the earnings front and, as a result, index futures were pointing to market strength before the start of trading.
Cisco Systems (CSCO) is in the spotlight Tuesday. Shares of the networking equipment maker are expected to head higher before the release of its earnings report later today. After the close of trading Tuesday, Cisco Systems is expected to report earnings of 18 cents a share on sales of $5.55 billion, according to Thompson Financial. Abercrombie & Fitch (ABF) and Brocade Communications Systems (BRCD) also report earnings after the close of trading. May Department Stores (MAY) is set to release results before the opening bell today.
In other stock news, Mylan Laboratories Inc. (MYL) is likely to trade actively after the company said profits in the latest period were little changed from year ago levels. According to the pharmaceutical company, increasing competition for its acne medicine offset gains from a legal settlement. Revenues missed analyst estimates and the stock is expected to trade modestly lower on the news.
Meanwhile, Intel (INTC) may gain after the chipmaker said its inventories rose to its highest levels since 2001 amid signs of improving demand from electronics makers. Chip stocks may also get a lift from the latest report from the Semiconductor Industry Association [SIA]. The monthly report showed a 32% surge in worldwide semiconductor sales during the latest period.
The economic calendar remains light. Weekly retail sales figures are released Tuesday morning, but are not expected to trigger any reaction in the financial markets. Later today, Federal Reserve Bank of Chicago President Michael Moskow may garner some attention when he speaks about the Fed’s economic outlook at 1:15 p.m. ET. Fed Reserve Bank President of Philadelphia Anthony Santomero delivers a speech 2:30 p.m. Some traders will be listening to the remarks from the Fed officials for any indications regarding the next move in interest rates.
In the options market, it appears that the three-day sell off in the equity markets is taking a toll on investor sentiment. For instance, the CBOE Volatility Index ($VIX) surged 1.64 points yesterday and finished the day near 20. Meanwhile, put activity rose sharply. More than 2.9 million put options traded across the six US options exchanges, compared to 3.03 million calls. The volume represents the busiest day for put activity since March 2004 options expiration. In sum, the sharp rise in VIX along with the surge in put activity indicates that traders turned a good deal more bearish yesterday, and therefore the stock market might be oversold in the short-term.
Frederic Ruffy Senior Writer Optionetics.com ~ Your Options Education Site
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