Markets collapse on the failure by the Congress to approve the bailout plan. Stocks posted its one day worst decline in 21 years. Wachovia sold is banking operations. Failures in Europe increased. Personal Income was up .5%, Personal Spending flat, negative after inflation.
ECONOMIC DATA
9:45 AM Chicago PMI
10:00 AM Consumer Confidence
YESTERDAY’S MARKETS
A massive sell of on the U.S. equity markets as House rejects the $700 billion bailout plan. The E-mini SP opened lower for the day at 1197.50, well below its previous close, and dropped almost immediately to 1171.50 from where it bounced back up to 1183.00. With huge selling pressure, the index sold off to new intraday lows reaching 1166.00. As markets were waiting for the bailout plan vote, the E-mini SP traded on a sideways pattern between 1180.00 on the upside and 1163.50 as support. As the vote took place and the plan was rejected, the SP and all the other indexes just collapsed, the SP fell from 1170.00 to 1117.00 in just a few minutes. The index bounced back to 1165.00 and with huge volatility sold off once again to the 1120.00 level, bounced to 1155.00 and traded down for the rest of the session closing above fair value. The SP ended the session at 1118.75 above its 1113.50 daily low with a huge loss of 95.75 points. The Nasdaq lost 162.75 points and settled at 1512.00 and the Russell finished the day down by 53.70 points at 650.10. The Dow posted its worst one day loss in all its history, down 777 points at 10365.
MARKET COMMENTARY AND OUTLOOK
Yesterday I wrote: “Last week we started to work against the 1223.00-1225.00 area, first as a support area and the as a key resistance level that will hold any further advance if the trend is down. Volatile low volume sessions, erratic trading behavior and a market that reacts nervously to any bailout plan related piece of news, has not given traders the possibility to stick with a trend, however, the trading range between 1180.00 to 1225.00 on the SP has been defined as the consolidation area that once it gets broken, will indicate the direction that the markets will follow. Looking at the SP daily chart we can observe the clear triangle formation, that despite the last two spikes above an below it, has been built, and once it gets broken either to the upside or downwards, will result in a huge move; to the upside, for a test of the 1300.00 area on the SP that may coincide with the 11,800 level on the Dow, and to the downside, with many possible scenarios, a higher low around the 1166.00 level, a double bottom at 1133.00, a marginal or false break below that low that gets immediately reversed, or the final leg for this bear trend that push the SP down to the 1093.00-1089.00 levels, before the market starts a long term upside move or a long term sideways pattern. The current downtrend remains intact, and in a short term perspective, it will resume once the 1180.00 level gets violated on a close. For today’s trading session, markets are trading sharply lower during the Globex session, the 1192.50-1191.00 support areas have been penetrated and the SP looks ready for a test of the 1180.00 level during the day. I assume that the first time that the index gets there, buyers will step in and try to push prices up, so I may be a buyer there, in particular if that level is tested during the first hour of the session. I also will be buying there, if the SP breaks below it, holds the 1178.50 area and then it trades back above that level.”
Yesterday failure of the recent 1180.00 support area resulted in a massive sell off. The fear, reflected on the VIX.X which reached an astounding 46.28 level was general. Investors sold everything at the worst possible prices just to get out of their long positions. This mini crash that brings back to our minds the 1987 crash will probably force the Congress to reconsider its vote or to release a modified version of the bailout plan. That for sure will result in a massive rally, a countertrend rally that should last for a minimum of 7-12 sessions when the news gets released. However, with plan or without it, the U.S. economy is in a recession, and that will be reflected in lower stocks prices. Yesterday losses reached $1.4 trillion dollars, so the House surely considers that congressmen made a “nice trade” by rejecting the plan that no matter if it would only benefit Wall Street, was indispensable to avoid what happened yesterday.
The SP has reached levels below the 1133.00 area, one of the scenarios that we discussed yesterday, is this down move the false break of the lows that we were expecting? Is this the moment to go long the markets as something will have to be done immediately to restore confidence or is this just a temporary low in a market that at some moment could go for the 1093.00 area on the SP and 10,000 on the Dow?
Yesterday’s sell off should see a relief rally, maybe a huge relief rally that takes the SP back to 1163.00 or higher and the Dow back to the 10,700-10,800 band before the markets get back in trouble; it will happen today? I don’t know, but certainly these huge chaotic moves will continue making difficult for day traders to play the markets with reasonable stops. So keep in mind that when you place a trade, and you find yourself on the right side of the markets, you may adjust your stop loss orders or take a profit at the first sign of failure, and if you are on the wrong side, be quick to take your loss.
For today’s trading session, if yesterday’s lows can hold, the indexes should be able to rally but nothing good will happen all the time that the SP is trading below our 1151.00 pivot level. Every rally below that area should be considered a selling opportunity, but an early test of yesterday’s lows could give long players a good entry.
TODAY’S SESSION
For today’s trading roadmap and intraday updates, please read the authors bio.
TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P
NASDAQ
RUSSELL
Resistance 4
1178.00-1180.50
1582.00-1584.00
684.20-685.50
Resistance 3
1148.00-1151.00
1565.00-1566.50
677.10-678.50
Resistance 2
1137.00-1138.50
1547.00-1549.00
669.80-671.00
Resistance 1
1128.00-1130.00
1530.00-1532.00
661.20-663.00
PIVOT
1151.00
1564.00
667.60
Support 1
1110.00-1108.25
1494.00-1492.00
644.30-642.00
Support 2
1099.00-1097.00
1478.00-1476.50
636.00-634.50
Support 3
1089.00-1087.50
1548.00-1456.00
626.00-625.10
Support 4
1081.00-1079.25
1441.00-1439.00
615.00-613.80
S&P
NASDAQ
RUSSELL
FIBONACCI
FIBONACCI
FIBONACCI
1396.90
2001.89
810.26
1371.35
1956.11
795.34
1330.00
1882.00
771.20
1288.65
1807.89
747.06
1263.10
1762.11
732.14
1221.75
1688.00
708.00
1180.40
1613.89
683.86
1167.63
1591.00
676.40
1154.85
1568.11
668.94
1113.50
1494.00
644.80
1072.15
1419.89
620.66
1046.60
1374.11
605.74
1005.25
1300.00
581.60
963.90
1225.89
557.46
938.35
1180.11
542.54
DAILY PROJECTIONS
S&P
NASDAQ
RUSSELL
AS DAILY HIGH
1170.00
1600.00
679.10
AS DAILY LOW
1062.25
1406.00
615.90
Support, Pivot and Resistance levels courtesy of Arturo Stern. He authors the E-mini Daily trading advisory which gives technical analysis on all the major stock index futures contract. For more of his analysis go to www.theminitrade.com Arturo can be reached at arthur@theminitrade.com
Futures and options trading involve risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. This is neither a solicitation nor an offer to buy or sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this document. The past performance of any trading system or methodology is not necessarily indicative of futures results.
