Wednesday, May 21, 2008

Markets Mashed Again

Taking its cue from yesterday's day-long sell-a-thon, investors took some time Wednesday morning determining the direction of the market. The major indices hugged the flatline or traded slightly negative all morning, but, by 2 PM, the selling had accelerated into another rout of the bulls.

Dow 12,601.19 -227.49; NASDAQ 2,448.27 -43.99; S&P 500 1,390.71 -22.69 NYSE Composite 9,397.03 -138.98

The precipitous drop in stocks coincided with the release of minutes from the Fed's April meeting. The Fed governors apparently were very close to not cutting rates at all (they cut federal funds .25%) and indicated that the economy was very weak, with stresses from the high price of oil, gas and food; credit issues; and continued weakness in the housing market were paramount concerns.

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Once again, oil exploded to another record high price, settling at $133.17, up a dramatic $4.19 in just one day. This also contributed to the selling of stocks, with oil markets reacting to a large, unexpected drop in US crude inventories.

Normally, Fed minutes and oil inventory figures would not prompt such a strong reaction, but, given the market's jittery current composition, sentiment sent stocks to shocking new lows.

Speaking of new lows, there were 216 of them, compared to 204 new highs, somewhat of a surprise considering the breadth and depth of the sell-off. With trading characterized best as "one-sided," decliners outnumbered advancing issues, 4201-1820. These internal figures are still rather modest. More concerted selling and borderline panic would show the gap between new lows and highs much more pronounced, while the decline-advance ratio would be more like 4-1 or 5-1, rather than today's 2-1 ratio.

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With only two sessions remaining before a three-day holiday weekend, it's difficult to see investors staking out significant positions in stocks on Thursday and Friday. More likely, the markets will mark time, squaring up solid positions while dumping weak sisters.

Now that the markets have broken out of their tight 4-week trading range (see yesterday's posting), the stage is set for a retest of the March lows. This could occur rapidly, as sentiment has turned decidedly negative of late, but a gradual drift back to 12,000 seems to be in the cards over the coming two weeks.

The metals continued their sustained rally, with gold advancing $8.40 to $928.60 and silver gaining 33 cents to $18.05.

NYSE Volume 1,389,451,000
NASDAQ Volume 2,192,166,000

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