As has been pointed out here for the past couple of weeks, the markets were becoming "accident prone". Light volume, overbought conditions and severe complacency are conditions that lead to sharp sudden declines on much higher volume. No orderly corrections in this environment.
With oil rich Libya's regime near collapse bloodshed was rampant as the Libyan Air Force, aligned with Gadhafi, attacked the Libyan Army and unarmed protesters aligned with them. All this was followed by an incoherent rambling speech by Gadhafi and rumors he set his oil fields ablaze. Its unclear how this will end as this is written.
Stock markets plunged, oil prices soared, and precious metals rose, while other commodities fell as investors scrambled to temporary safety in bond markets.
It didn't help stock investor mood when retail behemoth WMT gave a rather sour outlook. HD's rosy report and outlook was ignored in the selling. It may be homeowners would rather fix-up their current homes than try and move up as the Case-Shiller Home Price Index continued to fall.
Consumer Confidence came in much higher than expected which provided a momentary lift but now we can say this is "old news" as higher fuel prices will dampen this mood.
Volume was much higher by recent comparisons while breadth was decidedly negative and may per the WSJ put in a 10/90 day when all is calculated.
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is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
McClellan Summation Index
is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
Continue to Concluding Remarks
That wasn't fun was it? But, despite the source of the decline, the market was cruising for a bruising. Many bullish pundits will argue that stocks are cheap based on forward PE estimates. This assumes earnings will come through as they believe. However, many companies face a margin squeeze based on higher raw materials prices.
Importantly, in after hours trading, HPQ reports a miss and poor guidance. The stock is down nearly 10% currently.
Perhaps tomorrow there will be a bounce but HPQ's results won't help that cause.
Let's see what happens. You can follow our pithy comments on
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