That was beyond ugly!
It was a bad day to start but then Bernanke put the final nail in the coffin with some very hawkish comments on inflation, signaling more rate hikes ahead. This is something they have to do as no one talks about the elephant in the room which is the out of control US deficit that must be funded by foreign currency that is getting a little harder to come by.
The Dow dropped 198 points but went straight down all day while the S&P went back to 1,265 and the Nasdaq dropped to 2,169. Let’s remember last Wednesday we were in worse shape and the same rules apply:
“The Dow must not go below 11,000 and the S&P must not go below 1,250 but I expect the S&P to have some respect for its 200 dma at 1,258 while the Nasdaq needs to stay above 2,150 until it can make it back over its 200 at 2,230.”
So we are triple testing those marks tomorrow. There is no reason to do anything but watch as there are miles to go up if things look good but below those levels we have just as far to fall if it comes to that.
The oil sector had its worst sell-off (3%) since mid-May, which was the middle of a spectacular drop from the market top after crude peaked out at $75 and plunged. This is not the same as oil is now heading up from $72 to $75 but, as I have said many times, it’s all a load of BS based on fear of the markets, not fundamentals. Now the fear is gripping the sellers of oil who worry that Iran may accept the treaty tomorrow (they won’t, not right away) and that oil will show obscene builds on Wednesday (they might).
Don’t let the small build in oil price fool you, that has less to do with oil traders and more to do with last minute oil pumpers. As the Valero chart clearly illustrates, there was no doubt by Valero traders that oil was going down. Even as it flew up this morning towards $73.50 Valero fell steadily.
http://finance.yahoo.com/q/bc?s=VLO&t=1d
Gold notched up a small gain but still can’t get back to $650 and gold stocks gave up all of their strong gains this morning. This also is predicated on fears of possible peace breaking out with Iran tomorrow but I doubt we will get a resolution (if any) until later in the month.
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Everything was so terrible I’m not even going to go over the carnage.
The oil trades were obviously voided by the Valero Rule but the rising price of oil in the morning kept us off the short side as well. I bought some XOM $62.50s anyway and came to regret it and all I can do is hope for a bounce tomorrow so I can get my .42 back (and that’s after doubling down to cost average!).
I’d love to say that this has opened up some exciting opportunities but I wouldn’t buy a thing on today’s finish. We are kind of back to where we were last week when I said we need a 2% gain before we can take a rally seriously but let’s now say that we need S&P 1,300 (35 pts), Nasdaq 2,250 (80 pts) and Dow 11,300 (150 pts) otherwise all we are doing is forming a double top that will lead to more losses.
It is very doubtful we will make those numbers in 2 good day’s of trading, yet alone one and anything lower than the above danger levels and we have a very real danger of another 2% drop day.
