10962.54: Lowest Dow Close Since July 2006

Well, that was interesting.

Today had something for everyone — or perhaps nothing for anyone is more accurate?

• Volatility returned in force (Finally!) today, with the VIX climbing over 30.

• Fannie (FNM) and Freddie (FRE)  fell more than 25% each, as the bailout plan makes it clear that shareholders are not going to be rewarded for showing such bad judgment as to own this crap. They closed at  $7.07 and $5.26 respectively — possibly on the way to zero.

So, what happens next? Where does this market take us on its wild ride?

What say ye?

~~~

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  1. fred commented on Jul 15

    Wouldn’t agree. It looked to me like another failed rally attempt and if it isn’t an old adage on Wall St. then it should be that failed rallies are the mother’s milk of bear markets.

  2. Douglas Watts commented on Jul 15

    the bailout plan makes it clear that shareholders are not going to be rewarded for showing such bad judgement as to own this crap.

    Paging Tom Sawyer’s Fence !!!!

  3. leftback commented on Jul 15

    I think Barry smells a sharp rally – be careful out there…!!

    Today rocked: DUG, TSO and USO puts. But it’s been a tough trade to get started – this is all in the timing – bear market success means being short the right stock or sector at the right time. It’s much harder than anyone imagines.

    Who knows what tomorrow will bring? More panic by the energy longs, I hope !!! A nice big build in inventories and a bit of strength in the $ might just send them scuttling to an increasingly narrow exit…. we haven’t seen a good commodity panic in a while, eh??

  4. johnnyvee commented on Jul 15

    The gov’t got a free shot when it saved some equity for Bear Stern’s shareholders. If it does it again, this time with the GSEs, there may be rioting in the streets.

  5. Mich(^IXIC1881) commented on Jul 15

    “this is all in the timing – bear market success means being short the right stock or sector at the right time. It’s much harder than anyone imagines.”

    Trust you me leftback, I know, and I don’t need to imagine, because in 2008 I had puts for all these stupid financials, FNM, BAC, JPM, LEH, BSC (this one was in late 2007) and I never make significant, if any, money on them. Always bought early, always sold early, even though I kept some for weeks…It pisses me of seeing FNM for the last few days, because only a few weeks ago I had them..

    Then again, I am also grateful that at least I was on the right side of the market and didn’t suffer huge losses.. I just have to accept that options are probably not for me, I should stick to my “fundamental story” theme through etfs and select-stocks.

    Kudos to those who get the timing right, I sure am not one of those.

  6. Chief Tomahawk commented on Jul 15

    Has Jerry Springer been booked to MC tomorrow’s duel with the House Republicans?

    Last chance to grandstand before the fall elections.

  7. DL commented on Jul 15

    Odds of a rally would be higher if intraday VIX gets to at least 35 and closing VIX at least 31.

  8. Andy Tabbo commented on Jul 15

    As a strict market technician, a cooky elliotician at that, I had been wondering what events would catalyze the big waves lower which the models were predicting. Since early March I was calling for a big countertrend rally into May with a subsequent huge collapse. I just couldn’t see what the new “news” would be that would trigger the moves….

    I have to be honest here. I had NO IDEA what kind of off balance sheet program the U.S. was running in Fannie and Freddie. I’ve been a commodity trader for a long time and I have some advanced degrees, not that they count for much. And, I had no idea about the magnitude of this socialized debacle.

    I’m not a dummy. However, I feel stupid for missing this one.

    The point is….if some of the people who actually read newspapers daily and trade markets regularly had no idea about this growing debacle in FNM/FRE, which now seems obvious in retrospect, how are the rest of the Americans going to feel about the fact that they’ve ALL contributed to a huge socialized program that induced people to buy homes?

    Things have become much clearer to me in the last few weeks about the extent of the socialistic programs that run through this country. We make fun of the French for being “a bunch of Socialists.” C’mon. This is sickening. At least they’re practicing a truer form of Socialism

    We’ll see some urban unrest in the next few years.

    – AT

  9. Andy Tabbo commented on Jul 15

    Very simple technicals here…

    We’ll probably see 1172 (50% retrace of entire ‘bull move’), before a decent counter trend rally. The subsequent 10%-15% rally in stocks will be the last gift given to short sellers….

    – AT

  10. gregh commented on Jul 15

    capitulation chatter hear we come. Esp if the commodities/oil fall while counter-sectors don’t offset

  11. Mich(^IXIC1881) commented on Jul 15

    michange,
    good information…err, well I am really assuming they’re, since I don’t belong to the 0.01% of the TBP population that speaks French

  12. Mike in NOLa commented on Jul 15

    My vote is a couple hundred more down on the DJ before the rally. VIX did jump during BB’s testimony, but fell back to 28.5

  13. Paul Griffith commented on Jul 15

    I expect Dow 9999 by election day.

  14. VennData commented on Jul 15

    At Dow 10578 Bush will have had zero change since his inauguration (less the usual caveats of inflation, dividends, and the sheer joy of investing.)

  15. marc priest commented on Jul 15

    How do we create a bull market? Make sure the supply of stock is less than the demand. So get ready for many of the financial stocks to undergo reverse splits. Better yet, bankrupt them and then all the new convertible debt holders will convert to new common with a new cusip and bam, let the pumps begin. Where have we seen this game before? The airlines. Standard operating procedure. The writing is on the wall if you read between the lines. What did Paulson say? Bankrupt the failing banks. Spoken like a true Investment Banker…..or just a guy who knows how the market really works.

  16. Larry commented on Jul 15

    The rally starts this week or early next. Question is whether it lasts more than a few days. Where will the good news come from to sustain it?

  17. Rich Shinnick commented on Jul 15

    How do FRE and FNM get bailed out and the shareholder’s get $0 without a bankruptcy? Anybody…

  18. Scott commented on Jul 15

    Paul Kedrosky posted a comment that we are now down 7 straight weeks and asked if we cared to guess when the other 2 occaissions were when it went to 8. After some looking it appears it was Sept – Oct 1929 right before the ’29 Crash and again in Sept – Oct ’87 right before the ’87 crash.

    Can anyone confirm??

  19. Donny commented on Jul 15

    Damn it! I really hate being so pessimistic about the market and economy. I know when so many people think that way, it’s generally a great time to buy. However, this time I think it’s different. We’re screwed, and it’s going to be worse than most of us imagined.

    Selling stocks short at this stage, is like kicking a tiger … a dead one. In fact, I actually feel sorry for people that speak bullish on the market.

  20. Scafarelo commented on Jul 15

    Few oddities in theses markets (European),lack of volume,lack of volatility,the workforce is consistent ie every morning since one month equities markets are down 1 Pct on no volume,and April May have recorded steady inflows of money to be deployed in US mutual funds.
    Equities markets downfall have been well broadcasted to produce an all in aseptised Bear market, good enough to scare the genuine stocks holders and leave some room for the brillant institutional investors.
    It is a a tragic
    When are supervision bodies going to fulfill their mandates?

  21. Tom Starke commented on Jul 15

    US markets are priced above their intrinsic value because investors don’t know how much capital the federal government is going to pump in. If the feds can hold the market up for the time required to digest bad mortgages and redistribute the resources of non-viable concerns, the coming expansion will lift the market’s value and carry its price back up. That’s a big “If”!

  22. Simon commented on Jul 15

    It’s always different. The choices are the same the reasons are never the same.
    This time the answers lie with energy and information. Energy and information are everything.

    The worlds population has doubled since the last energy crisis. Information is now highly democratic. Anyone who wants it can get it. Anyone anywhere.

    America used to have all the money. Not any more. America has used up all its easy energy.

    Find the point where the Dow Jones diverged from its historic uptrend, extend that line.

    I’m picking Dow Jones still about 9000 in 2011

  23. Eric Davis commented on Jul 15

    11700, then we retest.

    Your Site Stats Spiked,

    and it’s been Very Manic over here.

  24. HCF commented on Jul 16

    I’ve been trying to figure out why all the commentators seem to point to VIX in the range of 30-35 as being the indication of capitulation and a bear market bottom. I guess for the last year or so, every time, it gets in the low 30’s, there is at least a temporary rally. However, going back further, we really should be looking at historical highs for the VIX. It seems to have hit an all time peak of ~44 during the 1998 crisis, and hit just below 40 in early 2002 near the bear market bottom. THOSE I feel are much more indicative of what may be to come. If anything, the confluence of factors now are probably worse than those leading up to either of those spikes. So it’s not like there is a magic string that pulls us back from the precipice once we’ve hit 30 or 32 or 35. It’s too bad that the VIX has only been around since 1993. It’d be fascinating to see what the VIX would have looked like in 1987 or 1929.

    My guess of what will happen? I have no idea, but I’d be willing to bet a dollar that the VIX breaks out to an all time high between 45-50 before all the blood has been squeezed out. Of course, I don’t think that happens this week or next, but either way, it’ll be an interesting ride…

  25. joerollo commented on Jul 16

    Scott, I am showing 8 straight down weeks on the S&P from:

    Week ending 03/30/1970 – 05/18/1970 down 24.4%
    Week ending 01/29/2001 – 03/19/2001 down 18.4%

    If we closed today, we would hit 8 weeks again and down 14.1%.

  26. tomd commented on Jul 16

    Considering the normal impossibility of predicting market movements short term, how can one possibly try to predict these markets that have been so heavily manipulated since March 17?

    Only answers are to either 1) stay out or 2)trade both long and short simultaneously. Adjusting one position or the other in response to a move one way, then adjust the other way when they take it the other way. How much to adjust and when to adjust are matters of judgment, and if one doesn’t care to make those judgments, then answer #1) is for you.

    TomD

  27. scafarelo commented on Jul 16

    The structured products sold by banks to clients are having their tolls (All throughout the golden years 2006 2007) means were good to pump the equities markets, leverage on equities 1/3 loans with lockin period of 3 years and guaranted return unless markets fall more than 30 Pct (done today)
    Ramifications are easy to compute and conflict of interest more obscur.

  28. touche commented on Jul 16

    There’s going to be a lot of ups and downs, but net net, its a long ways to the bottom.

    The fundamentals are like a black hole pulling everything down. To reach the bottom, we need to see massive write offs of bad debt and BKs, many more foreclosures and auctions and substantial layoffs in bloated financial institutions and the government. And this would be just the beginning.

    The US economy will have to make due without the $1 trillion in new debt each year. Multiply that a few times to compute the reduction in GDP.

  29. cbond commented on Jul 16

    The S&P is now 13% below it’s 200 DMA . . . we’re clearly in the huge snapback zone

  30. Douglas Watts commented on Jul 16

    Here’s an example of demand destruction.

    Since May, my wife has been staying overnight at her sister’s house one night a week rather than driving the 100 mile commute back and forth to her job from our house. As soon as gasoline prices let up even 20 percent, she will stop doing this, and resume a 100 mile per day commute.

    This is how delicate demand destruction is. We’ve seen this repeatedly since 1973.

    Cheers.

  31. Popo commented on Jul 16

    Early this morning I posted on a number of boards that I thought the market would rally after the Bernanke/Paulson testimonies and the Bush pep talk. I told some of my bullish friends that this would be a brief spike, and would be an excellent (maybe the last) time to get out of the market before the bottom dropped out.

    Frankly today’s bump lasted a little longer than I thought, but I felt vindicated by the close as things started to fall. That was it folks. Now, down we go.

    Because in reality we know that nothing has changed. The banks are still screwed. Citigroup still has $1.1 Trillion off balance sheet. The commercial real-estate crash is still coming. The credit card crash is still coming. And oil is still (contrary to some hilarious predictions today) scarce.

    Down we go.

  32. JoJo commented on Jul 16

    I think Roubini has it about right in the RGE newsletter:

    “In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets.”

  33. Richard commented on Jul 16

    when i see DOW 10,500 i’m going to start buying in in some chunks going long. i have a 20 year time horizon and while i think we have some rough road ahead we’ll snap back.

  34. Jay commented on Jul 16

    Look at the EUR/USD and gold tonight… They are ready to spike heading into tomorrow. VIX at 28. Tomorrow – Bernanke , CPI, and oil inventories.. a close below 11k.. how do you get long equities in the face of that?

  35. Risk Averse Alert commented on Jul 16

    Though possibly 10% down over the next week, Monsieur Market’s pending capitulation will be the launching pad for a melt-up a la October 1998 – Y2k.

    Or is it more appropriately like 1929? The first half of that year stunk, too. Then, liquidity congealed and ramped a stretched market even further into the absurd trap where Final Fantasy is played.

    Same game, different version…

  36. old trader commented on Jul 16

    Closed my pos. in SDS today….am waiting for that snap back, and plan on jumping bcak into the pos. (up 60% in exactly 11 mos, in 2 round trips)

  37. Dislocated commented on Jul 16

    A lot of bad news discounted already… VIX peeking… Looks like a local bottom. The market needs to breath. That said we are far from the ultimate low. Long 1/6th.

  38. Jim commented on Jul 16

    I think we get a rally going into expiration to wipe out as many puts as possible (put interest is HUGE). Rally may continue after that for a while.

    Then we get the 3rd leg down …gates of hell open up. Many banks and businesses start to go tits up.

    This is basically the Denninger and McHugh thesis.

    I think they are right, but I dunno.
    – Most of the 2000-2003 dumps in the S&P were 300 points (and we are not there yet).
    – Depends alot on oil and financials. If oil does a rocket shot or a big banks goes under right away …black hole sun …here we come ..here we come. :(

  39. leftback commented on Jul 16

    We all know where this is going, but it isn’t going to happen yet.
    Watch out for the inevitable snap back rally – they always appear at the most unexpected moments – who knows why?

  40. constantnormal commented on Jul 16

    Hard to say. It would certainly seem as if things should be lower, considering the state of the finance industry, housing markets, and the incredible diving dollar. But the PPT has certainly been working their (black) magic, so perhaps that accounts for the lightness of this decline. Over the longer haul, I suspect that their actions will only stretch out the agony, and will not alter the ultimate magnitude of the decline one iota (just a hunch). I would tend to be looking for AT LEAST 50% off the peaks, more in certain indices.

    That would put us looking at a ground floor in the neighborhood of 1400 on the NASDAQ, 7000 on the DJIA, and 780 on the S&P 500. If anywhere close to reality, that would say we have a LOT farther to fall, although the exact path to the bottom is likely to be twitchy.

    The real ugliness has yet to unfold, and the Fed is almost outa ammo. I do find their willingness — nay, EAGERNESS — to step in and support each and every big failure that staggers in the door to be scary. When the smoke clears, will the Fed have bailed out every business in America, only to have killed the currency? THAT would be a tasty bit of irony.

  41. Vermont Trader commented on Jul 16

    I’m a buyer at SP 500 1205..

    Went long yesterday morning.. will probably hold through meat of earnings season or to my 1280 target.

  42. rodeo commented on Jul 16

    Q for experienced traders: could the SEC’s current and possible future attempts to curb shorting have an impact on the Ultra short funds? I have some positions in SKF, SDS, & SRS I’ve been holding for a while. Thanks.

  43. John commented on Jul 16

    Some of the hysteria here is moving off into self parody eg. Dow 7000. We probably have some way to go and I can see 30% off the peaks which translates into at or around 10,000 as a possibility although I don’t think it will get quite that bad if for no other reason than that this would imply some of the crown jewels of US business outside the financial sector selling at distressed levels which means the SFA’s would be step in.

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