Stock Market Crash More to Come
Stock-Markets / Financial Crash May 07, 2010 - 12:26 AM GMT
Dow Plunges Most Since 1987 Before Paring Losses - The Dow Jones Industrial Average posted its biggest intraday loss since the market crash of 1987, the
euro slid to a 14-month low and yields on Greek, Spanish and Italian bonds surged on concern European
leaders aren’t doing enough to stem the region’s debt crisis. U.S. Treasuries surged.
The New York Stock Exchange told CNBC that there were no system errors during the Dow’s plunge as speculation of bad trades swirled through the market. The Nasdaq OMX Group Inc. said it is working with other markets to review the plunge.
“It’s panic selling,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s concern that the European situation might cool down global growth and freeze the credit markets.”
Bank Swaps Surge as Moody’s Raises Sovereign Contagion Alert
The cost of protecting European bank bonds from default surged to the highest level in 13 months as Moody’s Investors Service said lenders face “very real, common threats” from the region’s fiscal crisis.
Banking systems in Greece, Portugal, Italy, Spain, Ireland and the U.K. may come under pressure as the crisis worsens, Moody’s said in a report today. The ratings firm said yesterday it may downgrade the Portuguese government and its banks after Standard & Poor’s last week cut the sovereign debt of Greece, Portugal and Spain.
(Financial Times) Analysts said the euro’s breach of $1.30 against the dollar could have an impact on the behaviour of the world’s central bank reserve managers, which could drive the single currency lower still as they pondered its status as a reserve currency.
Diversification of global reserve holdings has been a source of support for the euro in recent years as central banks sought to adjust their portfolios away from the US dollar.
VIX challenges its broadening formation.
-- The VIX challenged the top
trendline of its Broadening
Formation, closing above short-term
Trend Support at 22.15. Yesterday I
suggested that the VIX may break
above 29.22 in the near future. It
closed in the upper half of its weekly
trading band and has a potential
target of 60.
The CBOE Put-Call Ratio for equities ($CPCE) came down a little at .97 today. Retail investors are now net neutral today. The pros have cut back on the $CPCI to 1.23 (less bearish) at the end of the day. The 10-day average is still high at 1.47. The NYSE Hi-Lo index closed down 129 points today to -125, the lowest level since last March.
SPY back-tests the Broadening Top
Action: Sell/Short/Inverse
-- SPY plunged below daily Trend
Support/Resistance at 113.50. It
bounced off weekly Trend
Support/Resistance at 105.00 and
remains sandwiched between the
two.
The Broadening Top leaves little doubt that the next extension could leave SPY testing 65 by early June.
There are other variations, but for the present, I suggest that an attempt to buy the market may be made tomorrow. If it fails, the circuit breakers may be invoked either Friday or Monday.
The QQQQ tests lower suport at 41.
Action: Sell/Short/Inverse
-- QQQQ tested the bottom trendline
of its Broadening Formation and took
out the February low. The bounce
back to 47 was to be expected. It
closed at weekly Trend
Support/Resistance at 46.60.
The next move should take out the
bottom trendline of the Broadening
Formation. There may not be a retest
of the lower trendline once it is
crossed. The NASDAQ is
investigating the possibility of some
erroneous trades made this afternoon.
ZeroHedge is shut down, so there will be no rebuttal. I suggest that this was simply a panic selloff.
XLF continues its decline.
Action: Sell/Short/Inverse
--XLF has much further to go to test
the bottom of its Broadening
Formation. Yesterday I suggested
that XLF may decline in a series of
1s and 2s leading to an extended
breakdown. It appears that this
observation was correct.
The bottom of the formation for XLF
may happen sooner than early June.
Citigroup pleads innocence of
erroneous trades today.
FXI took out its February low.
Action: Sell/Short/Inverse
-- FXI is in a confirmed bearish
trend. The cross of the short-term Trend
Resistance below the intermediateterm
Trend Resistance confirms the
decline as well as the violation of the
last Seasonal Cycle low in February
makes this decline doubly bearish.
The Shanghai market declined 4.11%
in overnight trading, confirming the
downtrend.
GLD soars in a panic throw-over.
Action: Neutral
-- GLD came within a point of
exceeding its December high. As it
stands, the corrective pattern barely
qualifies as labeled. A further push
above 118.76 invalidates the wave c
and above 119.54 creates a new high.
Nonetheless, I am more bearish than
bullish on GLD. GLD has a giant
wedge formation in the weekly as
well as the daily charts, so once it
turns, it may collapse. I am simply
waiting for it to decline below shortterm
Trend Support/Resistance to
make a position in it.
USO’s decline continues.
Action: Sell/Short/Inverse
-- USO made big headway toward its
lower trendline. Given the close
proximity of that trendline, I suggest
that USO may fall much deeper.
Once below 34-35, there is virtually
no support for USO until it reaches
single digits. I am not sure what kind
of calamity may befall us, but it
appears that there may not be very
many using oil later this year.
TLT made a huge spike today.
Action: Neutral
--TLT spiked even higher as panic
buying hit treasuries. It remained
above short- term Trend Support at
91.51.
The cycle pattern is calling for a decline into a trading cycle low in mid-May. It has exceeded the top of its daily cyclical range. The weekly range allows for TLT to go as high as 105, but it may have already seen the top. We could see an inversion of the cycle, where the called-for low is actually a high, but I am not taking any chances of an abrupt and strong reversal at this point.
UUP continues upward.
Action: Buy/Long
-- UUP remains above short -term
Trend Support at 24.12. There is a pivot on Friday-Monday that we may want to monitor, but frankly I see no end to the pattern, yet.
The cycles call for a potential low in mid-May but that still leaves UUP an opportunity for another week or so of gains, if UUP continues rallying through its pivot. The pattern and the breakout still support UUP going higher in the short term.
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Disclaimer: The content in this article is written for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.
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