Markets digest prospect of more financial bailouts

Market Snapshot for October 4, 2011:

  • Closing Prices: DOW 10,808.71 (+153.41, +1.44%), S&P 500 1,123.95 (+24.72, +2.25%), NASDAQ 2,404.82 (+68.99, +2.95%), Nikkei 225 8,450.74 (-5.38, -0.06), DAX 5,216.71 (-159.99, -2.98%), FTSE 4,944.44 (-131.06, -2.58%)
  • OIL 77.74, GOLD 1,635.00, SILVER 30.165
  • EURO 1.3274, YEN 76.69, BRITISH POUND 1.5424, U.S. DOLLAR INDEX 79.72

Market Breaks to New 52-Week Lows

Market volatility has been quite high ever since the market broke down into the beginning of August. Tuesday's session was no exception. After multiple days of of successive downside, the market was becoming quite extended and starting to favor an upside break in the trend channel on the 60 minute charts heading into mid-week. As I mentioned in yesterday's column, however, the pace of the selloff was strong enough that it invited another flush to new lows before such as correction.

The morning breakdown in the market took place in the early hours of the day in the index futures when trade began in London at 3:00 a.m. ET. This is a common time for major moves in the futures to take place and the index futures had been trading in a gradual trading range following Monday's close. A second high within that channel took place on weak upside momentum heading into 3:00 a.m. ET. This created a technical pattern for a break lower as well.

Dow Jones Industrial Average (Figure 1)

If the morning flush had been rapid, we would have seen a gradual move off those lows as compared to Monday's decline, but the pace of the selling shifted a great deal compared to Monday's action despite breaking to new lows on the year in both the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI).

The market was down more than 2% by the time the 10:00 a.m. ET economic data was released. By this point the market had fallen more than 20% since peaking in May. This is a key price level because trade under that price point is viewed as bear territory.

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