Stock Market Collapse Continues.....
Stock-Markets / Financial Crash Aug 09, 2011 - 05:15 AM GMTBy: Jack_Steiman
The market doesn't fool around when it gets angry. It's certainly a reminder of how things are going around the world both fundamentally and politically. How often do we see a 512 point down day on the Dow, 136 on the Nasdaq, and 60, on the S&P 500 get followed up in a week by numbers as bad, or worse, on some indexes! Not very often in your lifetime. It was an amazing follow-up for sure. We saw the Dow lose 634 points today. The Nasdaq joined the party with losses of an astonishing 174 points, while the S&P 500 turned in a head-turning loss of 80 points. Small rallies along the way.
Just before 3 PM Eastern Time, we saw a 300-point rally in the Dow, only to lose all 300 points back to the downside into the close. There are only oversold bounces along the way for now. No bottoming sticks in place at this point in time. We'll get a bottoming stick that will give a good bounce, but it hasn't arrived yet. When markets get in foul moods, such as this, which occurs once you lose final line in the sand support, which was 1249 on the S&P 500, it's best to stay out of harm's way.
You can see how fast and sharp it got once this critical level went away. People don't believe it can get this bad, but it does get this bad, and in a hurry. Before you can blink an eye, it seems, you're looking at levels dynamically below what was there just a few weeks back. Markets almost always go higher, but when a bear market comes, it can take out years of gains in a very short period of time. That process is under way as we speak. You look to the market to tell you where we are in the world with regards to critical economic and political issues, and no matter what you may personally think about the same issues, it's always best to respect the markets message, and not your own, because the market has the final word. Never forget that. If you play against the markets mind, you will be a loser every time.
Over the weekend we heard the big news come down from the S&P 500 that the United States was being downgraded to AA+ from AAA. The first such downgrade in United States history. The market didn't take kindly to the news, although, it's totally unfair to blame this news for the big crash down today in our equities market. There are terrible economic concerns coming in from Europe, along with continued bad economic news from our own part of the world. Maybe this was an additional catalyst, but the news around the globe with regards to economic deterioration is the real reason things are falling apart. Jobs are being lost and new ones are not being created. There's bad news on almost all fronts, and so watching the market decline this hard, can't be blamed on just the downgrade that took place over the weekend.
There are so many problems globally to go around, and with things deflating out, stocks are adjusting to the new levels of economic growth, or lack thereof. Markets don't get it wrong. Ever! The market plays catch up when it seems things are falling apart. It's not the markets fault, it's the fault of our elected leaders, which started first, and foremost, with Alan Greenspan. No one seems to have the solution, and that's clearly what the market is thinking as well. Enough problems to go around folks. The market's telling us how unhappy it is with everything.
Is anyone who has a clue listening?
Most scary of all continues to be the behavior in those financial/bank stocks that are simply being torn to shreds. The Direxion Daily Financial Bull 3X Shares (FAS) or on the financials is down nearly 28% in one day. Stocks like Bank of America Corporation (BAC) are going away day by day. Is it going to zero? I don't know, but it sure is acting that way. Other financials continue to be torn apart without a day off, it seems. The semiconductors, of course, are joining in the party as they're apt to do, so when the financials get hit very hard.
They seem to die off hand in hand. Sounds romantic, but it's more of a horror dance down the abyss. While the rest of the market certainly took it on the chin today, nothing took it as hard as those financial, and bank stocks, along with those semiconductors. The key overall is that there's nowhere to hide, and that's not normal either. Other than gold, nothing seems to be working. No reason to think that this won't continue for the foreseeable future. No matter how bad things are, the single most important thing to remember is to stay away from the financial/bank and semiconductor stocks.
The market is violently oversold. That's the bad news. Why not good news? Simply because you have to think about what would cause a market to get this oversold. It takes a once in a very long time type of situation to allow markets to find no bids even with RSI's on the daily charts in the teens. Yes, I said teens.Unheard of basically, yet even those levels are only bringing brief rallies that quickly get sold off. We're not even able to get back to 30 RSI readings. That seems so far away it feels like it'll never get back there, and that basically never happens.
Things have to be real bad for the market to not be able to bounce hard at these levels of oversold. Oversold as you, hopefully, know by now is NOT a buy signal. It tells us a bounce, and in many cases, a strong bounce, is upon us. But you have to realize it's not a true buy signal, which will only come from MACD divergences on the daily charts over time. There may be a point where a strong bounce becomes obvious that can be briefly played on the long side, but once again, I remind you, that we're on a sell signal and not to worry too much about oversold.
So here we are. The market is broken. It's in a bear, and things are likely to get much worse over time, even though there will be fabulous rallies along the way. S&P 500 1249 should be too tough for the bulls for a very long time to come. Shorting strength is best, or simply staying cash. This could last a lot longer overall than we'd all like, but we have to adjust to things as they are, not to as we want them to be. The bear is here. Make no mistake about it. Again, I would say, strength can be used to lighten up if you're stuck in longs. We can hope for better times ahead, but the sky is full of rain for now. Use your umbrella. Be smart about things.
Peace,
Jack
Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.
Sign up for a Free 21-Day Trial to SwingTradeOnline.com!
© 2011 SwingTradeOnline.com
Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
