How Low Can It Go?
S&P futures traded to a new contract low at 1337.50, and before the opening were trading at 1340.50, off 1930 for the session. CPI came out this morning at the higher end of estimates. Bonds were trading up 10/32 on more flight to quality.
Traders should keep in mind that this opening is a little bit worse than it appears because we settled around 400 points below fair value. Right now S&Ps are called to open 1000 points under the cash close of yesterday at 1350.
Bear in mind that the key is 1325 in the cash. Below that, it’s a new low for the year, and expect selling to accelerate. In the futures our big level of resistance will be between 1344 and 1348.
If we can get above this level, we have a chance to get toward 1358. We have a neutral zone from 1360 to 1373. On the downside, 1339.50 was Thursday’s and Friday’s low; that has been exceeded.
Support now is between 1335 and 1331. If we get below this zone, look for a move to 1321.50. Along the way 1324.50-1320 is support. Limit down today is 1324.80.
NASDAQ this morning was offered at the limit at 3075. Last week our low in the NASDAQ was 3025, and we settled at 3046.50 that day. These are the first round of targets. Our low in the NASDAQ Cash was 2991. However, our low for the year was 2897.
For today, we see resistance between 3105 and 3120, then 3150-3170 becomes critical. 3170 would be unchanged. Above 3170 expect a short-covering rally, which could propel us toward 3250. On the support side, we see 3050 and 3025. If we get below this, look for a move to 2960.
Double limit in the NASDAQ is 2980, so that should be measured as a stopping point in a decline to 2960. If this fails, and we settle at new lows for the year in each major index, we may have a crisis of confidence. Things could get extremely slippery in the next couple of days.
Dow will certainly open below 10,000. Low for the year in the Dow cash is roughly 9740, which is our first target.
For today, expect large volatility and fast markets. In the S&Ps, 300 or 400 point swings will not matter. In other words, fasten your seatbelts. One thing to ponder: it would be one thing to lay the blame on this move down purely on IBM. The problem with that statement is we had a significant down day yesterday. We have now given back all of Friday’s emotional short-covering rally.
To put it bluntly, there are few reasons to buy this market anywhere. Now typically at the “worst” is usually the best times for investors to buy. But we have grown accustomed to quick, snap-back rallies from our big moves down, and this move down does not have that characteristic. It will be extremely interesting to see how the market responds in the next few days.