DOW – 223 = 16,321
SPX – 31 = 1874
NAS – 62 = 4213
10 YR YLD closed 2.28%
OIL – .69 = 85.05
GOLD + 14.10 = 1238.10
SILV + .10 = 17.60
The major indices were up and then down; small moves earlier in the session; then, in the final hour stocks slipped and kept falling. The S&P 500 has fallen 6.8 percent from its Sept. 18 record, making this the worst pullback in two-and-a-half years. The Russell 2000 sank 4.7 percent last week. The small-cap index entered a correction after sliding more than 10 percent from an all-time high in March. The Dow Jones Industrial Average has dropped 5.5 percent from its record last month, while the Nasdaq Composite Index has slumped 8.3 percent from a 14-year high reached in September. The Volatility Index, or VIX, rose 13 percent today to 24, the highest level since June 2012. Forget complacency.
The final hour collapse coincided with a report that an Emirates Airline plane in Boston was surrounded by medical crews and they removed five passengers over concerns about Ebola. But there is more to today’s trading than an Ebola scare.
Oil prices continued to slide. Saudi Arabia is saying they are comfortable with oil prices in the sub-$90 range. The Saudis don’t necessarily want prices to slide further, but they are unwilling to shoulder production cuts unilaterally and they are prepared to tolerate lower prices until others in OPEC commit to action, and that probably won’t happen until oil hits $80.
Commodities have taken a beating recently, and it’s not just oil. Coal stocks were trashed last week when China announced that it would reinstate tariffs on certain types of imported coal that were scrapped a decade ago. The tariffs threaten to slash coal imports and boost China’s domestic coal industry.
And if you don’t like fundamental explanations and if you don’t buy exogenous events, you can just look at the charts; the technicals are breaking down. If you look at the Dow Industrials, you will probably see a rising wedge pattern. Let me explain; if you print out a chart for 2014, and draw a straight line across the tops (that’s your upper resistance line) and another straight line across the lows (that’s your lower support line), you will have a wedge that start out wide in January and narrows; until the past couple of days, where the Dow dropped below that lower support line. A rising wedge formation is pretty bearish. The next levels of support come in at 16,025 and then at 15,370. Last week, the Dow dropped below the 200 day moving average and we did not get a bounce today; that would be considered bearish.
