The charts this past weekend showed that most of the major indexes had broken down through their wedges. The only remaining soldier was the Nasday, and that broke down in a big way Monday out of its own wedge to join its brothers and sisters. It led down as well, meaning big money was making sure there was no doubt about their intentions. Although nothing is ever a slam dunk in this crazy game, the rest of the major indexes being on breakdown made it quite likely the Nas would join in as the market was going to struggle with upside.
The bulls sell when those wedges break and the bears get a lot braver in their shorting habits. In addition, the S&P 500 lost its final line in the sand support at 888. There was a confluence of support between 888 and 895 from the 50 day simple moving average to the 20 day to trend line. Once 888 broke, the selling accelerated and this level was not seen again for the rest of the day and closed nowhere near it. With the close above 860 and below 888/890, this opens up a new trading range, albeit a small one, on the S&P. Who knows how long we trade between it, but trading between it will be most difficult. Lots of whipsaws once a new range has been established.
It's important to discuss stocks when a market is breaking down. How the leaders are holding up, or not. We saw lots of stocks break down on Moday in a big way. Merciless slaughters from stocks you haven't seen in quite some time. Leaders such as Burlington Northern (NYSE: BNI), Potash (NYSE: POT), and First Solar (NASDAQ: FSLR) just to name a few. Huge losses.
Many sectors took it on the chin as well including the real estate, banking, transportation and the commodity world. There were many more than that. Participation from just about everywhere. A stock like Deckers (NASDAQ: DECK) hasn't been hit in a long time, but was just crushed on Monday. If the leaders were performing well while the rest of the market was falling it would give rise to some hope, but that just wasn't the case today. Even Apple (NASDAQ: AAPL) took it on the chin and broke below critical support at 90. Leaders failed and thus so did the market below massive support, and there's no other way to say it other than the bears are in total and complete control here. Don't fight it. Only if 888 were to be taken back with force would the bears lose their grip. There are no signs of that occurring any time soon.
What may have been most disturbing about Monday's action was the action in the banking sector. Bank of America (NYSE: BAC) and Citigroup (NYSE: C) are huge institutions that are acting as if they're the next big names to go away from this global depression. Just annihilated were these two and on good volume. At least if the volume had been light but it was anything but light and that's a huge red flag. Even at these depressed levels the big money wants out of them. No interest here is something to behold. C in the 6's wasn't wanted. Makes you wonder just how bad things are! We know they're horrific, but it tells me we're not in a recession at all but most likely a depression even though the higher ups are playing spin doctor. The market is sending the bigger message -- or dare I say, the truth and the higher ups that be don't like it. They better start accepting it and be more forthright with the public.
The commodity sector spoke loudly on Monday about what type of global situation we're in. They were slaughtered and the arms that swing down also felt the pain. No demand means no movement of goods from the railroad or transport stocks. All were crushed there. When you see this type of move lower it tells just how deflated this world is becoming. Deflation is real folks and don't let anyone tell you otherwise. The level of deflation is screaming depression in my eyes but let's hope that's not the case. Sure seems that way to me though.
The short term charts are oversold, and yet those 30 minutes charts did nothing on Monday. I was afraid of that. The set up was there for a small bounce, but the bears said no. You'd think that 860 would fight here and with the near-term charts all oversold, it's probable that we'll see a huge fight at this 860 level of critical support. Many previous attempts to break 860 were thwarted by the bulls; thus, we need a strong bounce to say it'll hold again. If the bounce(s) from 860 are weak and the oscillators do next to nothing, then look out as we'll break down much further.
We wait and try not to anticipate too much but after some testing at this level, it'll become clearer as to what's about to take place. If 860 goes we'll move back towards 775 once again. The more you pound on a support level the more likely the odds are that it'll break over time. Let's not go there now as that would be VERY BAD technically for this market and the longer term outlook for this market. One day at a time here. 860 to 890 is now the range we're interested in. We'll deal with what's next at the appropriate time.
