Massive Market Crash Sends Dow Into Correction Before Last-Minute Save

Monday's rapid rise at the opening bell turned to a massive selloff as the session progressed, prompted by a self-fulfilling note from Morgan Stanley chief strategist, Michael Wilson, that emerged around 1:00 pm ET, calling the current market turmoil more secular in nature rather than the "cyclical" call that most Wall Street analysts have been making.

The Dow and other major averages were sent off like fireworks at the open, but stalled in early trading, beginning their descent just after 10:00 am ET. The Dow topped off at 25,040.58 and continued lower, finally bottoming out at 24,122.23, an intra-day loss of more than 900 points, top to bottom. With just 15 minutes left in the trading session, short-covering took the Dow up more than 300 points, eviscerating more than half of the day's losses.

As for percentages, the Dow today actually was sent down just over 10% on both a closing and intra-day basis form the October 3rd all-time high. Intra-day, the Dow topped out at 26,951.81 before closing at 26,828.39. That puts the 10% correction mark at 24,256.63, intra-day, and 24,145.55 on a closing basis, both of which were exceeded today, though the closing number avoided a clear-cut entry into correction.

As for the benchmark S&P 500, today's close was 9.8% lower than the September 20 closing high of 2930.75. For those who like round numbers, that would qualify as being close enough, especially since the S&P bottomed out at 2,603.54, well below the number necessary to call it a correction. That index was down more than 55 points prior to the late-day rescue, finishing with a modest 17-point decline.

The NASDAQ and Dow Jones Transportation Index, both already well into correction territory, suffered even more losses on the day.

In agreement with Morgan Stanley's Wilson, there's growing evidence that what stocks are undergoing is anything but cyclical in nature, despite Friday's advance reading of third quarter GDP coming in at a rosy 3.5%. It's worth noting that the most recent quarter's growth was less than the second quarter's 4.2%, and that the first estimate is often revised lower in subsequent months, as data becomes more well-defined. Additionally, the third quarter figures were goosed higher primarily by consumer spending rather than business capital expenditures (CapEx), which were moribund.

For those of bullish sentiment, one has to consider just where markets are supposed to go when unemployment is at historic lows and the stock market is at historic highs, more than nine years into the longest bull market expansion in stock market history.

Proponents of Dow Theory (and the Elliott Wave) need only to look at a one or three-month chart to surmise that the Dow and the Transports have signaled a primary trend change - bullish to bearish. The Dow fell sharply from October 3rd to the 11th, rallied meekly through the 16th and puked it all up (or down, as the case may be) to current levels. The transports had already completed the four-step top-bottom-recovery-lower bottom prior to today's disaster, although it's all-time high was back on August 29.

The not-so-wild cards in the current scenario are the Fed's relentless assault on the federal funds rate, furiously raising a quarter point per quarter, inflation fueling via Trump's trade tariffs, and the stubbornness of wages to do anything but stagnate. It's a potpourri of potential pitfalls that are hard to ignore.

Like housing prices prior to the sub-prime crash, stock valuations do not always go up. This time is not different, and, judging by the frantic closing activity today, tomorrow could be a fully-loaded house of pain.

Unless the Dow rallies over the next two days, Octobers cumulative loss is looking to exceed the February and March losses combined.

And so it goes. Markets are cyclical and sometimes, secular. The latest days of trading feel like sometime has arrived.

Incidentally, today is the anniversary of Black Tuesday, October 29, 1929. Could that wicked buying in the final fifteen minutes have been an attempt to prevent history repeating?

Dow Jones Industrial Average October Scorecard:

Date	Close	Gain/Loss	Cum. G/L
10/1/18	26,651.21	+192.90	+192.90
10/2/18	26,773.94	+122.73	+315.63
10/3/18	26,828.39	+54.45	+370.08
10/4/18	26,627.48	-200.91	+169.17
10/5/18	26,447.05	-180.43	-11.26
10/8/18	26,486.78	+39.73	+28.47
10/9/18	26,430.57	-56.21	-27.74
10/10/18	25,598.74	-831.83	-859.57
10/11/18	25,052.83	-545.91	-1,405.48
10/12/18	25,339.99	+287.16	-1,118.32
10/15/18	25,250.55	-89.44	-1,207.76
10/16/18	25,798.42	+547.87	-659.89
10/17/18	25,706.68	-91.74	-751.63
10/18/18	25,379.45	-327.23	-1,078.86
10/19/18	25,444.34	+64.89	-1,013.97
10/22/18	25,317.41	-126.93	-1,140.90
10/23/18	25,191.43	-125.98	-1,265.88
10/24/18	24,583.42	-608.01	-1,873.89
10/25/18	24,984.55	+401.13	-1,472.76
10/26/18	24,688.31	-296.24	-1,769.00
10/29/18	24,442.92	-245.39	-2,014.39

At the Close, Monday, October 29, 2018:
Dow Jones Industrial Average: 24,442.92, -245.39 (-0.99%)
NASDAQ: 7,050.29, -116.92 (-1.63%)
S&P 500: 2,641.25, -17.44 (-0.66%)
NYSE Composite: 11,942.15, -34.79 (-0.29%)

WEEKEND WRAP: Bombs Away, Markets Crack, Mid-Term Turmoil

October is always full of surprises, whether they be political or financial in nature.

This week was not an exception, but, rather, the rule. Losses being sustained this month - since a topping out on October 3 - have been more severe and more significant than those encountered during February and March of this year.

That's saying quite a bit, since those winter months were quite scary. President Trump was under assault from Robert Mueller, the Special Prosecutor assigned to look into allegations (not a crime, mind you, but mere allegations, an unprecedented situation in American jurisprudence) of collusion with Russian operatives in the 2016 presidential election. Since there's been no mention of "Russia, Russia, Russia" for more than a few months now, it's safe to say that Trump was right all along: the entire investigation was a massive witch hunt.

Fast forwarding to October, Trump is still being assailed, though lately it's been over what really rankles Democrats and other detractors of the billionaire in the White House: his manners, or lack thereof, his incessant tweeting, and his very obvious disdain for liberals, Democrats and especially the media at his campaign rallies. Trump gets under people's skins. Some of it is by design. He likes making people uncomfortable. It's a way of seeing what they're made of; whether they'll lash out emotionally or display grace under pressure. For the most part, the people he's attacked, prodded, and called out have reacted with a modicum of restraint, though astute observers of the political class can tell that some, like Nancy Pelosi or Maxime Waters, are becoming unhinged or already were and Trump's thumping on them is only exacerbating their conditions of unease.

Not to belabor the point, but Trump hasn't been a bad president. In many regards, he's been good for the country. It's his rhetoric that annoys people, even his supporters. He's just not very mild-mannered or even-tempered as Americans are used to in their politicians. Some people actually enjoy his brash, unvarnished behaviors, taking them as a breath of fresh air and realism, apart from the usual stultified, superficial, and, yes, condescending attitude so popular among the Washington, DC elite.

Wall Street has taken a semi-political stance on Mr. Trump. Largely, they'll tolerate his decisions and commentaries on trade, tariffs, jobs, the economy, the Federal Reserve, and unemployment. Beneath the surface in many board rooms, however, there's a distaste for his bluster and boldness. It's just not the way things are done in higher-up circles of business. C-Suite executives prefer evenhandedness couched in cloudy rhetoric, ensconced in data points. Thus, there's a willingness to blame corporate shortfalls on this president. He presents himself as a convenient scapegoat and Wall Street honchos are more than willing to cast blame his way.

More than a few earnings reports this week included references to Trump's tariffs - those either in place or those he's only proposed - as excuses for shortfalls in revenue or earnings, or, most often, in forward guidance. There is a not-so-cleverly-disguised blame game being played at the highest levels of corporate America. Executives in growing numbers are calling out Trump's trade policies as a rationale for their own failures, and, for some, rightly so.

President Trump never promised Wall Street or anybody else a Rose Garden party. He always knew, and often made clear, that his imposition of tariffs on a variety of trading parties - but particularly, China - were going to have some negative effects. Naturally, he was right. Prices for many things made outside US borders are going up, a direct result of tariffs, but the end goal is not higher prices, but fairer trade, and that is not going to occur without some pain, and some of that will be significant.

Laying ahead for the economy, Wall Street and US consumers are higher prices right at the most inopportune time, the holiday buying season. When the final tallies from the fourth quarter are posted via retail sales figures and fourth quarter earnings in January, 2019, the numbers are likely to cause an even bigger shock. With all of America preconditioned for ever-expanding economic data, the fourth quarter of 2018 may look to some like the end of the world, if certain conditions are met, those being, retailers will slash prices to boost demand, resulting in lower profit margins and poor performance for some major companies. Trump and his terrible tariffs will be blamed.

This week was also overwhelmed by the "one big story" about the mad bomber from Florida who sent poorly-designed pipe bombs to former presidents and officials, presidential detractors, and a few current office-holders, all of whom shared one characteristic: they disliked or disagreed with President Donald J. Trump. Fortunately, the bomb-maker was highly unprofessional. None of his masterpieces of terror actually detonated.

Nevertheless, the "suspicious" packages that appeared all at once in mailrooms, postal facilities and elsewhere engendered a media frenzy and resulted in a quick arrest of the very obvious suspect, Cesar Sayoc. His background and the continuing investigation and eventual trial will extend well beyond the mid-term elections. For those wearing tin-foil caps and assigning this event to the "false flag" files, Sayoc's timing appeared to be too coincidentally close to election day. There's all sorts of spin. Most of it is not worth a moment's reflection.

Which brings up the matter of the mid-term elections, as if they were some world-changing event upon which the ultimate survival of American democracy and the rule of law hinged. That's how the media would have us view it, though contention for House of Representative seats occurs every two years without fail. Which party controls it gives power over committees to the winning side, the losers left to plot ways to undermine and unseat their successful opponents. This one's a little different, as it is something of a referendum on the Trump presidency, or so we've been told. The results won't matter much in the larger scheme of things since Washington DC politicians seldom do anything well, or right, or, at all. The mid-terms are just an excuse for advertising companies to make money and for politicians to claim they're on the right sides of various issues. Generally speaking, the American public would be better off if there were less politicking, less government overall, and less preening and posing for cameras by the stuffy types that populate the interior the DC Beltway.

How does politics affect stock prices: a little, but, in the end, not much at all. The mid-terms are all about bloviating and posturing and ballot-box stuffing, and boasting. Whoever wins will claim the juicy committee chairs. Should the House flip from Republican to Democrat this year, though, it will be an unmitigated mess, rom media crowing about the victory of globalism over nationalism, to absurd proposals to impeach President Trump. That is the one scenario that even Wall Street is afraid to embrace. It could unhinge everybody and everything.

Notwithstanding any such Democrat miasma, the mid-terms will come and go in another 10 days or so, and with it any chance to blame either party for the downfall of the economy (which is actually doing quite well) or for particular industries or companies. They'll be done and the media can dance around the implications until the new political faces are sworn in come January. None of it will make any difference to stocks, bonds, or the prices of oil, natural gas, gold, silver, sugar, tea, coffee, or Diet Pepsi. Nothing. Unless the Democrats take control of the House. Then, look out.

As far as stocks are concerned, well, they're still largely overvalued by most traditional measures, those being straight up PE ratios or the more in-vogue CAPE (Cyclically Adjusted Price Earnings) ratio, a Robert Schiller concept that measures PE over a 10-year period rather than just the most recent one. It's sensible, and now, widely employed. According to the current chart, the CAPE is at 30.00, down a little due to the recent sliding, but still above 2008 levels and about even with 1929's Black Tuesday, from which the stock market crashed and was a contributing factor in the Great Depression.

That said, this bout of volatility in markets is not about to abate. Not by any means. All of the major indices closed out the week below their 200-day moving averages, and, maybe more importantly, the weekly charts put them below their 40-month moving averages, something that hasn't happened since 2008-09.

Stating the all-too-obvious, markets move in cycles, and the bullish cycle is about over. The bearish case - and this again is confirmed by Dow Theory, and we will spare readers the explicit numbers for now - has been signaled and is already underway. The only way up from here is to get to the bottom. There will be bumps, grinds, irrational exuberance, toil, trouble, relief rallies and false alarms, but the trend is your friend and the trend, friend, is down.

Dow Jones Industrial Average October Scorecard:

Date	Close	Gain/Loss	Cum. G/L
10/1/18	26,651.21	+192.90	+192.90
10/2/18	26,773.94	+122.73	+315.63
10/3/18	26,828.39	+54.45	+370.08
10/4/18	26,627.48	-200.91	+169.17
10/5/18	26,447.05	-180.43	-11.26
10/8/18	26,486.78	+39.73	+28.47
10/9/18	26,430.57	-56.21	-27.74
10/10/18	25,598.74	-831.83	-859.57
10/11/18	25,052.83	-545.91	-1,405.48
10/12/18	25,339.99	+287.16	-1,118.32
10/15/18	25,250.55	-89.44	-1,207.76
10/16/18	25,798.42	+547.87	-659.89
10/17/18	25,706.68	-91.74	-751.63
10/18/18	25,379.45	-327.23	-1,078.86
10/19/18	25,444.34	+64.89	-1,013.97
10/22/18	25,317.41	-126.93	-1,140.90
10/23/18	25,191.43	-125.98	-1,265.88
10/24/18	24,583.42	-608.01	-1,873.89
10/25/18	24,984.55	+401.13	-1,472.76
10/26/18	24,688.31	-296.24	-1,769.00

At the Close, Friday, October 26, 2018:
Dow Jones Industrial Average: 24,688.31, -296.24 (-1.19%)
NASDAQ: 7,167.21, -151.12 (-2.06%)
S&P 500: 2,658.69, -46.88 (-1.73%)
NYSE Composite: 11,976.95, -141.90 (-1.17%)

For the Week:
Dow: -756.03 (-2.97%)
NASDAQ: -281.81 (-3.78%)
S&P 500: -109.09 (-3.94%)
NYSE Composite: -480.32 (-3.86%)

Stocks Rebound, 11 Major Stock Indices In Correction, Down 10% Or More

Knee-jerk. That's all today's trading was. It evolved as an opportunity to see how many trades could be made on the assumption that stocks will continue to rise, that they are still good values, that despite the fact that major indices of at least 10 different important countries are in correction (down 10%), the US is still the best dirty shirt in the laundry, or something like that.

Just to placate the unbelievers, here is a partial list of stock indices already in correction or worse:

• DAX, Germany
• FTSE, Great Britain
• CAC 40, France
• Nikkei 225, Japan
• Hang Seng, Hong Kong
• SSE Composite, China
• SENSEX, India
• KOSPI, South Korea
• Jakarta Composite, Indonesia
• MERVAL, Argentina
• IPC, Mexico

Ummm, that's 11, but who's counting?

Bear in mind, some of the biggest gains are made during periods of volatility and the beginnings of bear markets. For proof of that, just go back to the NASDAQ in 2000, or the Dow in October of 2008. There were plenty of big days to the upside. Unfortunately, for those taking positions in stocks during those periods, the downside prevailed, and in vey large ways.

Put in perspective, today's broad gains covered about 2/3rds of yesterday's losses. That's not enough, and there is absolutely no guarantee that tomorrow is going to be a repeat performance.

Dow Jones Industrial Average October Scorecard:

Date	Close	Gain/Loss	Cum. G/L
10/1/18	26,651.21	+192.90	+192.90
10/2/18	26,773.94	+122.73	+315.63
10/3/18	26,828.39	+54.45	+370.08
10/4/18	26,627.48	-200.91	+169.17
10/5/18	26,447.05	-180.43	-11.26
10/8/18	26,486.78	+39.73	+28.47
10/9/18	26,430.57	-56.21	-27.74
10/10/18	25,598.74	-831.83	-859.57
10/11/18	25,052.83	-545.91	-1,405.48
10/12/18	25,339.99	+287.16	-1,118.32
10/15/18	25,250.55	-89.44	-1,207.76
10/16/18	25,798.42	+547.87	-659.89
10/17/18	25,706.68	-91.74	-751.63
10/18/18	25,379.45	-327.23	-1,078.86
10/19/18	25,444.34	+64.89	-1,013.97
10/22/18	25,317.41	-126.93	-1,140.90
10/23/18	25,191.43	-125.98	-1,265.88
10/24/18	24,583.42	-608.01	-1,873.89
10/25/18	24,984.55	+401.13	-1,472.76

At the Close, Thursday, October 25, 2018:
Dow Jones Industrial Average: 24,984.55, +401.13 (+1.63%)
NASDAQ: 7,318.34, +209.94 (+2.95%)
S&P 500: 2,705.57, +49.47 (+1.86%)
NYSE Composite: 12,118.85, +149.11 (+1.25%)

Ka-Boom, Stocks Crash, Key Support Levels Shattered; NASDAQ Enters Correction

Stocks turned in an ugly performance on Wednesday, unfortunately, it wasn't even as bad as the declines of just two weeks ago, on October 10. Apparently, traders don't like buying stocks on Wednesdays. Either that, or they like selling them on Wednesdays.

In any case the Dow Jones Industrial Average is down nearly 2,250 points in the last three weeks, the NASDAQ posted it's third-worst single day point drop in history and the S&P 500 has closed lower 13 of the last 15 sessions and the last six straight.

For the NASDAQ, the 329-point loss today eclipsed the 315 points shed on October 10. Four of the six, and five of the ten biggest single day point losses on the NASDAQ have occurred this year.

All of this is happening in the face of solid economic data, record low unemployment and moderate inflation. It's also happening in the middle of third quarter earnings reporting season, a time that many analysts had predicted would be challenging, which, at this point, seems an understatement.

The carnage today on Wall Street was unconfined and accelerated into the close, as opposed to yesterday's miracle rally off fresh lows. Well, today's bottoms were deeper and more pronounced than the levels breached on Tuesday, and they are signaling that this is only the beginning of a deeper dive, as the major indices are reaching or already have exceeded a correction of 10 percent.

At today's closing bell, the S&P 500 is down 9.2% from its October 3 all-time high. The NASDAQ is now down 12.4% from the August 29 all-time high of 8109.69. The Dow, which peaked on October 3rd at 26,828.39 is down 8.4%. The NYSE Composite is down 9.6%.

The Dow Jones Transportation Index, which was already off more than 10 percent, lost another 330 points today and is down 14.4% from its all-time high of 11,570.84 from September 14.

All of the majors have breached their 200-day moving averages, indicating that these losses are not technical, but more of a fundamental nature. Earnings reports thus far have been moderate, though there have been some notable misses, and more than a handful of companies have warned that the next few quarters may not meet expectations. That is exactly the kind of talk that scares bulls into hiding and encourages the bears, who have now taken control of market dynamics.

This is how record-long bull markets end, at the culmination of monstrous credit creation, with loud thuds and days and days of interminable, deep losses.

Dow Jones Industrial Average October Scorecard:

Date	Close	Gain/Loss	Cum. G/L
10/1/18	26,651.21	+192.90	+192.90
10/2/18	26,773.94	+122.73	+315.63
10/3/18	26,828.39	+54.45	+370.08
10/4/18	26,627.48	-200.91	+169.17
10/5/18	26,447.05	-180.43	-11.26
10/8/18	26,486.78	+39.73	+28.47
10/9/18	26,430.57	-56.21	-27.74
10/10/18	25,598.74	-831.83	-859.57
10/11/18	25,052.83	-545.91	-1,405.48
10/12/18	25,339.99	+287.16	-1,118.32
10/15/18	25,250.55	-89.44	-1,207.76
10/16/18	25,798.42	+547.87	-659.89
10/17/18	25,706.68	-91.74	-751.63
10/18/18	25,379.45	-327.23	-1,078.86
10/19/18	25,444.34	+64.89	-1,013.97
10/22/18	25,317.41	-126.93	-1,140.90
10/23/18	25,191.43	-125.98	-1,265.88
10/24/18	24,583.42	-608.01	-1,873.89

At the Close, Wednesday, October 24, 2018:
Dow Jones Industrial Average: 24,583.42, -608.01 (-2.41%)
NASDAQ: 7,108.40, -329.14 (-4.43%)
S&P 500: 2,656.10, -84.59 (-3.09%)
NYSE Composite: 11,971.91, -315.53 (-2.57%)

Stocks Creamed At Opening, Rally For Minor Losses

As mentioned in the most recent post, stocks tested a variety of support levels on Tuesday and actually crashed right through them early in the session.

But, about 10:30 am ET, a rally began, first in fits and starts, but by noon, it was well underway, lifting stocks well off their lows and continuing until... until... well, no, the major indices didn't turn positive, not even for a fleeting instant. By 3:00 pm all of the "greater fools" had been had, the dip buyers had bought all the dips they could and stocks drifted slightly lower into the close.

What started with the Dow down nearly 550 points, the NASDAQ off by more than 200, the S&P losing more than 60 points and the NYSE Composite down 264, ended with merely pedestrian losses and investors wiping the sweat from their furrowed brows. Once again, as has happened so many times during the Fed-led bull market of the 2010s, stocks averted catastrophe and sailed through the day thanks to so-called bargain hunters, that rare breed of speculators who believe buying a stock that's three to five percent off its highs is some kind of grand deal.

This is more than likely the coordinated work of central banks, who are not ever audited, who can created limitless amounts of funny money with the push of a button, and who have done so regularly in order to keep alive the dreams of prosperity and financial security for millions, by inventing - and then investing - trillions.

Behind the scene presented to the unsuspecting, unprofessional investing class - those people with retirements and life savings locked into 401k and other accounts - there was real damage. One index that did not recover very well at all was the Dow Jones Transportation Index, which slipped 199 points, to 10,237.02, a loss of 1.90%, sending it well below the key level of 10,397.23, its most recent low, from October 11, while also descending into correction territory for a second time this month, below 10,413.

With the transports falling like a bowling ball off a cliff, the importance of transportation to the rest of the economy has to be put into question. If nothing's moving, or, at least moving with less alacrity and determination, how strong is the whole economy? With their relevance to the Industrials via Dow Theory and in real life practice, the transports are the answer in search of a question, the question being how long can the slip-slide-recover charade continue before the bottom falls completely out?

The other fly in the financial ointment is, and has been, oil. WTI crude lost ground again today, sliding more than four percent into the low-$66 range, well off the $76/barrel high recently achieved. Not to offer a punnish perception, but oil greases the skids of industry and transportation. Lower pricing for the world's most vital commodity can mean one of three things: 1) lack of demand, 2) oversupply, 3) global recession. Of course, a combination of all three might be the correct analysis, though the implications of such a paroxysm might trigger a more virile reaction amongst the monied class.

Considering the ramifications of the major indices falling straight through support levels and then rebounding to more respectable levels, plus the demise of oil and the transports, one can easily conclude that the October volatility that has been apparent since the start of the month is nowhere near abatement. Even the mediocre losses today add to somebody's misery, though the pain felt is being doled out in small units, much like Chinese water torture, rather than having investors suffer the quick blade of the guillotine in a sudden crash (that may be saved for closer to the mid-term elections).

Stating the very, very obvious, this is far from over.

Dow Jones Industrial Average October Scorecard:

Date	Close	Gain/Loss	Cum. G/L
10/1/18	26,651.21	+192.90	+192.90
10/2/18	26,773.94	+122.73	+315.63
10/3/18	26,828.39	+54.45	+370.08
10/4/18	26,627.48	-200.91	+169.17
10/5/18	26,447.05	-180.43	-11.26
10/8/18	26,486.78	+39.73	+28.47
10/9/18	26,430.57	-56.21	-27.74
10/10/18	25,598.74	-831.83	-859.57
10/11/18	25,052.83	-545.91	-1,405.48
10/12/18	25,339.99	+287.16	-1,118.32
10/15/18	25,250.55	-89.44	-1,207.76
10/16/18	25,798.42	+547.87	-659.89
10/17/18	25,706.68	-91.74	-751.63
10/18/18	25,379.45	-327.23	-1,078.86
10/19/18	25,444.34	+64.89	-1,013.97
10/22/18	25,317.41	-126.93	-1,140.90
10/23/18	25,191.43	-125.98	-1,265.88

At the Close, Tuesday, October 23, 2018:
Dow Jones Industrial Average: 25,191.43, -125.98 (-0.50%)
NASDAQ: 7,437.54, -31.09 (-0.42%)
S&P 500: 2,740.69, -15.19 (-0.55%)
NYSE Composite: 12,287.44, -87.33 (-0.71%)