Stock Market Crash 8-8-11

Stock Market Crash 8-8-11

The S&P downgrade provided drama all weekend long.  The rumor of the downgrade was circulating on Friday so some of this downgrade was anticipated to be priced into the market, but alas, the futures were down large overnight Sunday night and the markets weakened from the open.

The S&P downgrade is only a tiny event.  That was not a big deal, it simply called attention to inept lawmakers that should have raised the debt ceiling two or three months earlier without drama.  Instead, the bickering and airing of the U.S.’s dirty laundry in public has led to a loss of confidence in Uncle Sam, by the citizens and the globe.

The main worry is Europe. The DAX, Germany, has now fallen in excess of 20% off the top now entering a bear market.  This spooked the markets.  The fear is that a bailout of Italy and Spain will result in a downgrade of France and/or Germany ratings. This will throw European financing into turmoil since measures to date are based on France and Germany maintaining their stellar ratings.  Europe is further pinpointed as the problem due to the wild jump in gold today, now up towards 1720, the highest leap since March 2009, traders seeking the perceived safe haven.  Treasuries were supported well also, with yields actually falling due to the demand.

Oddly, we are speeding towards disinflation now but gold is maintaining price. Some traders feel that gold is beneficial in an inflation or deflation environment. Caution is warranted since gold weekly and daily charts are calling a top for gold here—as gold makes its highest move in two years!?! Also, margin requirements can be changed at any time so stay nimble if playing in the yellow metal. Of interest, is that today also shows that gold price was trading above platinum price.

As today’s crash unfolded, the futures were down and projected a dump of about 30 spoo’s and about 250 handles on the Dow Industrials. The Friday LOD was 1168 so this level set up early as a vital support area. Accelerated selling would occur if this level was lost.  Further the 1150-1170 zone is sturdy support due to a confluence of pattern trend lines and the 200 week MA.

The utilities were the only sector trying to support the broad markets.  Price closed Friday above the critical 50 week MA for UTIL. At the open this morning, it failed.  That failure forecasted immediate problems ahead. 

At 10:15 AM, the SPX lost the 1168 level, Friday’s LOD, so the sellers came in force, driving the SPX down to 1151 in minutes. The markets tried to settle after that and hang on to 1150 but the President called a news conference, and as it was delayed for a half hour, than close to an hour, the markets drifted lower under the continued uncertainty environment.

Around 2 PM, the President’s talk did not ignite any confidence, quite the contrary.  The talk centered on the downgrade spilled milk when Europe is the problem.  The folks in the U.S. and around the globe now appear to be losing confidence in the leadership from the President and Congress.  There’s lots of blame to go around for all of them.

Once the 1151 level was lost another flush was expected, and occurred, the SPX went straight down to test 1333 support then 1321.  The Dow lost 11,000. Around 3 PM, S&P releases good news that XOM, ADP, JNJ, GE, MSFT and GWW have no fear of earnings downgrades, the rationale is that much of their business is sheltered due to their global reach.  The markets buoyed off that news but promptly rolled over and tumbled into free fall into the close, closing at the lows.

The SPX fell 80 points, or 6.7%, the Dow Industrials 635 points, or 5.6%, Nasdaq down 175 points, or 6.9%, NYA dropped 517 points, or 6.9% and RUT lost 62 points, or 8.7%. Wow, nearly 9% in one day!

Tomorrow the dance continues. Some weakness is expected in the morning as traders cover margin calls. Friday and today saw huge volume numbers and the action smacks of near term capitulation so a bounce would be expected.  Tomorrow the Fed meeting occurs but they appear out of bullets.  No loss of drama since China releases economic numbers overnight.  Perhaps China will step into the European markets as the rich Uncle?

Sleep? Who needs sleep. If you are a trader, brew up another pot of coffee.