Stock Market Crash 8-10-11

Stock Market Crash 8-10-11

Writing these chronologic snippets on the August 2011 stock market crash is becoming routine, every other day we lose five hundred points on the Dow Industrials.  That is what a VIX at 40 will give you day after day. If you want your heart to beat slower, and the magnitude of the index moves to lessen, look for a lower VIX, maybe we can get the moves down to 'only' 100 or 200 points per day in the days ahead. Remain strappped in otherwise.

Tuesday's late day rally excited even the most down and out bull, the happy hour last night was truly a happy hour, many convinced they had called the bottom, back slaps all around.  After hours last night, DIS, a Dow component, reported earnings that placed a wet blanket on the rally. Overnight futures took the red path again, and as we moved towards this mornings open, the indexes were oscillating wildly looking towards losses of 2 or 3% at the open. The wine and roses from last night long forgotten.

At the bell, stocks dropped like a stone. By 11 AM, the SPX was at 1125 after closing above 1170 on Tuesday evening, a 45 point drop which also tagged the 62% Fibonacci retracement of the rally move on Tuesday afternoon from 1101 to 1172. Indexes recovered but then flushed south again after 2 PM closing at the days lows at 1120. A big problem today was news that France would lose its credit rating like the U.S.  Rating agencies and French officials tried to soothe jumpy markets.  Societe Generale was out in force tyring to stop rumors that its finances were at risk.

Today the traders show more uneasiness with the politicians and especially the continued confusion surrounding economic policy in the U.S. The President and Chairman Bernanke met for an impromtu meeting today but all that did was to make anxious traders more nervous, as the day shows. BAC tumbled 20% on Monday and then recovered Tuesday, only to fall 11% today before paring those losses. The financials got whacked hard today, catching the flu from the Societe Generale rumors.  Europe remains the elephant in the room.  Italy and Spain are simply too big to fail, too big too bail, simply too big. The World is on pins and needles wondering how the Euro woes end.  Perhaps China will be the rich Uncle.

For today, 8/10/11, the third crash day in addition to 8/4/11 (last Thursday) and 8/8/11 (Monday), the Dow Industrials lost 520 points, or 4.6%, the SPX lost 52 points, or 4.4%, the Nasdaq lost 101 points, or 4.1%, the NYA lost 320 points, or 4.4%, the RUT lost 36 points, or 5.2%. Gold continued a parabolic spike today and touched the 1800 handle.

What about tomorrow? The Thursday session.

The minute charts are favorable to a bottom being placed in the SPX 1101-1125 area. After hours tonight, CSCO had a positive report and the stock is trading up 7% at this writing. This will help the bull case tomorrow.  SPX:VIX ratio closed at 26, nine points below the 35 level that will verify a rally so keep an eye on this ratio tomorrow. One of the first indicators that will tell you a rally is real is the utilities.  If UTIL, now at 397, moves up above the 50 week MA, now at 413.38, that will give a rally some street cred and allow room for further upside. But first, the 1112 and 1101 support may be tested in the morning.

For the SPX tomorrow, the market bears are holding the ball overnight.  If the bears can simply get under 1118 and touch a 1117 handle, the selling will accelerate in force, indexes will drop several handles quickly, the test of 1112 is a given, then perhaps the 1101 level.  The market bulls have a formidable task ahead since they need to drive the SPX up to 1172 tomorrow to spark the buyers and bring in accelerated upside enthusiasm.