A Few Thoughts After the Close:
The overall market sold off sharply today with a major portion of the sell off coming in the last 45 minutes of the day. For the day, the Dow Jones Industrial Average was lower by 634 points or approximately 5.6% to 10,809.85 Year to date, the Dow Jones Industrial Average is now down 6.7%. The S&P 500 ‘SPX’ was lower by approximately 80 points or approximately 6.6% to 1,119.46 Year to date, the S&P 500 ‘SPX’ is down by approximately 11%. The NASDAQ 100 Index ‘NDX’ was lower by 134 points or approximately 6.1%. Year to date, the NASDAQ 100 ‘NDX’ is down by approximately 7.4%.
The weakest indices on the day were the Banking indices with the KBW Banking Index ‘BKW’ down by just under 11%. Oil Services as measured by the ‘OSX’ declined by just over 10%, and the M.S. Cyclicals Index ‘CYC’ was down by just over 9% closing at 820.64 . I see significance in the movement of the Cyclicals Index ‘CYC’ as I feel it is a reasonable indicator of the direction of the economy.
Interestingly enough, the Amex Gold/Silver Index ‘XAU’ was down approximately 1.7% on the day, and is down approximately 13.7% year to date. One would think that with the record price of Gold this index would also be setting record highs. While I will be the 1st to admit that I have not taken a good look at the fundamentals of the individual components of this index, I see the failure of the ‘XAU’ (and the other gold producer indices) to track the upward movement of the price of Gold as an indicator that their input costs a/k/a cost of production are also moving higher. If I am correct on this, then that is a bad sign on the inflation front.
Also, Oil was lower by $6.05 to 80.83 per barrel, and Gold was higher by $63.80 to $1,714.0 per ounce, setting a record closing high in the process. On the soft commodities side, Corn was lower by $0.176 to $6.752 per bushel, and Wheat was lower by $22.40 to $6.564 per bushel.
I’ll try to be back later tonight with some updated support and resistance levels for the various indices I track. If not, I’ll be back early in the morning with an update prior to 8:00am, as I have an early morning meeting and won’t be in the office for the open.
A Few Thoughts Before the Open:
Standard & Poors downgraded the U.S. credit rating Friday evening. This obviously had a negative impact on world market, and the pre-open U.S. futures are extremely negative. With what looks to be a severe selloff in the making, I thought this would be an excellent time to looks at the support levels on the various indices I track.
Dow Jones Industrial Average: The Dow Jones closed at 11,444.61 (It should be noted that this is essentially the upside resistance level I published prior to the market open on August 5th) Pre-market futures are indicating a drop of almost 250 points on the open, placing the Dow Jones at approximately 11,190 At that level, support comes in at 11,006.02 IF support fails to hold, then the next level of support is at 10,698.75 on a closing basis.
S&P 500: The S&P 500 ‘SPX’ closed at 1,199.38 Pre-market futures are indicating an approximate 30 point drop in the ‘SPX’. This would put the SPX at approximately 1,169. At this level, support comes in at 1,150.23 IF support fails to hold at that level, then the next level of support is at 1,127.79 on a closing basis.
NASDAQ 100 Index: The NASDAQ 100 ‘NDX’ closed at 2,194.38 Pre-market futures are indicating an almost 60 point drop in the ‘NDX’. This would put the ‘NDX’ at approximately 2,134 At this level, support comes in at 2,117.33 IF support fails to hold at that level, then the next level of support is at 2,100 and then 1,975.33 on a closing basis.
Dow Jones Transportation Average: The Dow Jones Transportation Average closed at 4,693.59 I see downside support on the Dow Transports at 4,657.38. If support fails to hold at that level, then I see the next level of support at 4,516.35 on a closing basis.
M.S. Commodities Related Equity Index ‘CRX’: The ‘CRX’ closed Friday at 886.17. I see upside resistance on the ‘CRX’ at 941.05 and downside support at 847.10. IF support fails to hold at that level, then I see the next level of support at 843.77
FINANCIAL INDICES: Of the approximately 35 different indices I track, there are four (4) that are basically financial sector indices; the Amex Broker/Dealer, S&P Insurance, and 2 banking indices. The D0dd-Frank legislation has put the earnings of these firms at severe risk. A downgrade of the U.S. credit ratings has the potential to hit balance sheets particularly hard and thus their individual stock prices and these indices particularly hard.
KBW Banking Index ‘BKW: The ‘BKW’ closed Friday at 41.42. I see upside resistance on the ‘BKW’ at 44.52 and downside support at 34.28 on a closing basis.
S&P Banking Index ‘BIX’: The ‘BIX’ closed Friday at 121,89. I see upside resistance on the ‘BIX’ at 127.98 and downside support at 117.52 and then 100.96 on a closing basis.
Amex Broker/Dealer Index ‘XBD’: The ‘XBD’ closed Friday at 95.43 I see upside resistance at 101.13 and downside support at 92.97 and then at 80.87 on a closing basis.
S&P Insurance Index ‘IUX’: The ‘IUX’ closed Friday at 165.66 I see upside resistance on the ‘IUX’ at 175.13 and downside support at 143.80 on a closing basis.
I think the overall market is starting a new intermediate term downward trend. As a result, I would not be surprised to see the Dow Jones Industrial Average drop below 11,000 in the next few trading sessions and possibly below 10,000 before the end of the year.