Quake's rising toll sends stock indexes sharply lower

Good day! The devastating 8.9 earthquake and subsequent tsunamis that shook Japan and even racked the Unites State's west coast sent shock waves of another sort throughout the global markets on Tuesday. The U.S. indices were already experiencing weakness as a result of the technical bias for a pull lower into the second half of last week, but the bias was favoring a gradual drop and another push higher this week. Instead, the selloff's momentum increased sharply while the damage toll continues to rise. At one point, the Dow was down nearly 300 points before recovering more than half those losses by the end of the session.

Dow Jones Industrial Average (Figure 1)

Of paramount concern in the region hardest hit by the quake is a radiation leakage from the Fukushima Daiichi nuclear power plant following several explosions affecting reactors at the plant over the past several days. Increased radiation levels have already been reported in Tokyo that are 23 times higher than normal, although officials do not feel that the levels have yet reached levels to have a large impact on the overall population.

The disaster has triggered inspections at older nuclear power plants across the globe. Among them, the German government announced that it would be shutting down seven of its facilities pending further inspection. The United States currently has over 100 nuclear power plants in operation, which provide approximately 20% of the nation's power. Japan receives about 30% of its energy from nuclear plants, while some countries, such as France, rely on nuclear power for as much as 80% of of their electricity.

Alternative energy stocks have been on the rise since Friday and rose even further on Tuesday. First Solar (FSLR) (+8.17%) was the leading stock in both the S&P 500 ($SPX) and Nasdaq-100 ($NDX). Yingli Green Energy Holding Com. (YGE) (+8.97%) fared even better. This strength should hold into Wednesday, but the strongest portion of this rally in the solar energy shares in the short-term will already be established by Wednesday morning, taking away its appeal for new swingtrades positions. In wouldn't be surprising, however, to continue to see this sector remain of interest, particularly if the situation at the plant in Japan continues to worsen.

Both the Asian and European markets closed sharply lower on Tuesday. Japan's Nikkei Index fell another 10.6%, bringing the two-day loss to 16.1%. The Shanghai composite fell 1.4%, while Hong Kong's Hang Seng index ended the session lower by 2.9%. Germany's DAX was down 3.4%. Britain's FT-100 fell 1.3%. The Stoxx Europe 600 index closed lower by 2.3%. It had fallen 1.1% on Monday.

S&P 500 (Figure 2)


The lows in the U.S. market took place in the index futures in premarket trade. For the Dow Jones Ind. Average futures, those lows came around midnight, while the Nasdaq's hit heading into Tuesday's opening bell. From 6:00 a.m. ET into the open, however, the momentum of the price action shifted. A two-wave rally off lows around midnight was followed by a secondary test of lows heading into 5:30 a.m. ET, but that zone of support held and the index futures bounced quickly to 15 minute 20 period moving average resistance. Instead of selling off sharply once again, they hugged that level of resistance into the opening bell. This created a buy signal that confirmed when the 5 minute highs following the open were broken.

The action is the indices on Tuesday was typical following an extreme gap in the indices, particularly when the trend leading into the gap on the 60-minute charts is not a new one. More often than not, the lows established within the first 15 minute of the day following such a gap will hold and the gap will start to fill. This closure of the gap zone will nearly always last throughout the entire morning, but when the gap hits a major support level, such as the 100-day moving average we saw hit in the S&P 500 and Dow heading into Tuesday's open, a trend day is more common.

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