If stocks can't make a stand here, look out below

At least when the credit crunch was worsening on every level, the stock market had a good excuse for selling off day after day.

So what would the excuse be for today’s market rout, which pulled the Dow Jones industrials down 514.45 points, or 5.7%, to 8,519.21?

Some lousy corporate earnings reports?

"With a market move of this size, you’d expect to see some market-moving news -- and not just that we’re in a recession," said Marc Pado, U.S. strategist at Cantor Fitzgerald. Yes, the economy is sinking, but "I thought everybody knew that," he says.

Credit conditions improved for an eighth straight day, as measured by the rates banks charge one another for short-term loans. But the stock market paid no notice.

The benefit from the initial easing of the credit crisis "has come and gone," said Ryan Larson, senior equity trader at Voyageur Asset Management in Chicago.

Instead, disappointing profit reports from Boeing Co., Merck & Co., Kimberly-Clark Corp. and other big names helped set the tone for the day.

And another dive in raw materials prices undercut commodity-related stocks. Energy issues were the biggest losers in the Standard & Poor’s 500 index, falling 10.4% on average.

Investors still are trying to figure out how deep a recession to price into the market, Larson says. "This is going to be a process. There’s really nothing new to say," he says.

It’s also possible that Democratic presidential contender Barack Obama’s rise in the polls is upsetting some investors, although there isn’t much chatter about that among market pundits.

Some veteran analysts say the market is being tyrannized by computerized trading programs that can steamroll share prices, particularly in the final hour of the trading session.

"The programs are exacerbating volatility," complains Joe Saluzzi, a partner at Themis Trading in Chatham, N.J. He thinks it's time for regulators to slap curbs on the machines.

Many pros still believe the market is trying to carve out at least a near-term bottom here. The Dow today held above its five-year closing low of 8,451.19 reached Oct. 10.

The S&P 500 and the Nasdaq composite fell below their recent closing lows, but held above the intraday lows on Oct. 10 (which for the S&P 500 was 840, compared with today’s close of 896.78).

So, to chart-watchers (I know, voodoo to many investors), this still fits the classic pattern of a "retest" of the recent lows. If the market can bounce from here, it will strengthen the case that the selling is petering out.

And what happens if the indexes sink through those Oct. 10 intraday lows?

"If we blow through those, you’re going to see some really ugly stuff coming at you," Larson warns.

Just what everybody wanted to hear.

Comments

[Frederick]

You are correct about the Obama thing. So odd to even hear anyone in any traditional media outlet even say anything remotely negative about Obama. It's as if criricizing him, and his potential policies is illegal somehow. Anyway, bottom line though on that topic is that he may be able to get railroaded into office, but once there it's real deal time. For the first time in his life he'll have a job. And, my gosh, he actually will have to do something. The market is forward looking, and as a result, knows all of this already. Let's just say, not every major central bank in the world will be happy about the election of a man with such socialist and protectionist views. Ask yourself: how do stock markets in socialist countries perform, if they even have major markets at all? Mr. Larson providing the closing quote in the article says it well. It will be ugly. Another 20-25% down is feasible. Again, the market looks forward. None of this has been about Bush for the last 2,000 Dow points. It's all about his successor. Frederick

[Mat]

Why blame machines? They at least carry out a rational set of behaviors... I trust them more than panic-riddled human traders...

The bottom was tested at ~7800. It could hit 7000. You might even see a 6 in front for a while. But once Obama wins, you'll see a plan, direction, and some rational thought in policy; something we haven't seen for years. Back to 5 digits by Feb.

[Gerald Clough]

It doesn't seem to jibe for me: Warren Buffet, the most renowned investor of them all, is supporting Obama big time. Why then would all the little people below Buffet be scared by Obama when Buffet loves the guy? That theory that Obama is driving down the market is hilariously dumb, in my opinion.

http://www.savagerun.com

[Bernie Schillo]

Our entire economic system is falling apart. Massive bailouts and cash infusions by a government that is already Trillions in debt will do nothing more than temporarily shore up a failing system.

Frankly, don't worry about Obama or McCain or Bush. Worry about the layoffs that we are seeing in every sector of the economy every day. These statistics are REAL PEOPLE who will no longer have a job, therefore will no longer be able to spend money on products, resulting in even more layoffs. The downward spiral will continue. It is inevitable.

No one seems to be willing to admit that there is something radically wrong with our entire economic system. But wise investors are "selling", trying to get what value they can out of the paper they are holding. This is causing the massive drop in the stock market - not computer generated programs.

Anyway, the next 3 weeks will determine whether or not my analysis is correct. I think it is.

Bernie

[Brian]

@Frederick

Uh, take a look around you. Every industrialized nation on the planet has now partially nationalized their financial system. Even Bush Jr. is on board. The U.S. government is the world's largest mortgage holder, the largest insurance firm and the largest investor. Why? Because of the failure of the private sector - the vaunted "free markets" to pull itself out of the train wreck it created. Central banks around the world are engaging in what you call socialism to keep the financial system from collapsing and the ensuing hysteria that would follow.

This crisis has been the biggest failure of the private sector and privatization ever. Get a grip on your idiot ideology and learn critical thinking skills.

[Tom Petruno]

Gerald: It may not be small investors who are worried about an Obama presidency, but the hedge funds and others who control the big bucks. I'm not sure if the election is factoring in much at all, though, given that hedge funds et al. have plenty of other reasons to sell -- including because their margin loans are being called in. Plus, there are some Democrats on Wall Street, let's not forget; it's not a Republican monopoly.

Tom Petruno

[Lachlan]

Frederick. I think the Markets in most European countries are performing about as well as the US markets despite their disgraceful, crazy dangerous 'socialist' policies.
Germany, France, the UK, Spain, Italy, Holland, Denmark etc are all much more socialist than Barak Obama could ever make the USA. But I guess you're research didn't extend as far as those small countries with no 'major markets'.

Get into the real world and realise that very few (if any) countries practice as extreme capitalism as the USA. Most westernised countries such as those from Europe, Japan, Korea, Canada, Australia and New Zealand all have a basic 'safety net' of social services such as a publicly funded healthcare system, decent unemployment payments, annual and long service leave provisions, free education through high school and some level of government funding of University education and welfare payments and pensions which lower income Americans could only dream about - they also manage to house some of the worlds most recognisable and influential companies most of which have come out of this credit crisis in much better shape than their American counterparts.

[Josh]

It seems to be many Americans' beliefs to think that the President has full control over the entire direction of the US; he's just a figurehead with only power to veto and deploy a small (correct me if I'm incorrect) portion of the Armed Forces. If you want real direction, a good overall plan and some rational thought (it's been needed for a while) for this country, get the idiots out of Congress like "super anti-oil representing the state that consumes the most" Nancy Pelosi and "let's pay for my vacation home remodel with campaign donation funds" Ted Stevens. Both parties have their "model citizens" that deserve a swift kick in the rear or a good punch to the face

[jordan]

People are really afraid of Barack Karl Marx Hussein Obama becoming president. After all, the Republican leadership these past 8 years has been stellar.

World's greatest symbol of free enterprise destroyed in a terrorist attack: check.

President reading a book about a donkey for 10 minutes before taking any action: check.

North Korea testing nuclear weapons: check

Iran about to get nuclear weapons: check

Iraq: Mission Accomplished.

Major US city wiped off the map: check

Little to nothing done about it: check.

Collapse of the economy: check.

Halliburton, and all of the other Bush/Cheney cronie companys make out with hundreds fo billions of tax payer dollars: check.

With leadership like this, why wouldn't you want 8 more years of it???

Mcain/Palin 08'

[Al_in_Alabama]

Very little of the market meltdown is attributable to the probability of an Obama Presidency. It's mostly about the horrible balance sheets of banks at a time we're heading into global recession. Those who think the current troubles are due to bets on an Obama presidency probably blame Clinton and Jimmy Carter(president 28 years ago!) for almost everything that can't be blamed on Obama. I'm glad you guys are on the other sides of my trades.

[Marion]

@ Josh

EXACTLY. The U.S. presidency doesn't have a lot of power. We have a market economy, not a state-planned economy. There's not much a president can do. But they still get the credit when things go well and get blamed when the economy goes bad. And let's not forget that it takes two (or three) to tango in our political system: Congress (both houses, if they can get their acts together) passes the laws and the president signs them (or vetoes them). Presidents don't unilaterally make laws.

I mean look at Clinton's last two years in office. He was effectively castrated by the Monica Lewinski scandal and impeachment. But the economy soared. Clinton's doing? No way Jose.

[Nick]

To Brian Bernie has it right. Watch the documentary "the money masters" on youtube sometime. The fundamental problem is the system. Patching symptoms does nothing to stop the deep internal problem at the root: which is a debt based currency and fractional reserve banking. Worse than that, the centralized banks are all private, thus wielding tremendous leverage against law and policy makers for the sake of private, greedy interest, because entire nations are needlessly indebted to them (by using their privately issued debt notes as legal currency for the public).

[Bernie]

Brian , Jordan - you guys are funny.

Socialism is the only system that can accomodate everyone.

That's suppose to be what Democracy was about, but it seems to get perverted under that banner of a monolithic Republic.

We were suppose to pay taxes to take care of those who don't fit into the system, and in a largely capitalist system, that means protecting those who cannot protect themselves from snake oil salesmen. Perhaps if people in the U.S. could be less fearful of the word - Socialism - they would see that little would change, only that the people would take care of one another, instead of feed off one another.

[Jet]

Seems over the past month the Dow is trying to sink about 100 pts / day. At that rate it will be zero by Christmas. When a companies stock gets too close to zero - it defaults and goes into bankruptcy. But what happens when the whole stock market heads for zero? Yes the free market, private enterprise, capitalist system has failed in spectacular fashion. I doubt any part of the world can survive this event without major change.

The debt to GDP ratio is now 350%. It was 260% at the peak of the depression. Normal is about 150%. Mortgage payments do not match wages - so house prices keep sinking. Government is throwing money in every direction - nothing is working. Individuals and business are already overextended. Everyone has been using new debt to pay off old debt. That process has reached its mathematical limit. The Ponzi Scheme is now bombing off.

There are too many factors and variables - no body can make sense of it all at one time. Too much debt everywhere, Boomers all want to retire, 3rd world wants a piece, oil running out, solar energy, Commodities, Infrastructure, The New Deal, too much regulation, too little regulation, climate change, technology, Internet, Terrorism, China, Cold War, Israel, Georgia, Iran, Special Interests, Rich get richer, Central Banks, Gold, Fiat money, Credit Cards, Derivatives, CDO's, Enron, Off Balance Sheet, Bailouts, Golden parachutes, Conspiracies, Pension Funds, Investment Banks, Shadow Banking System, Hedge Funds, The Fed, BIS, World Bank, IMF, Iceland, Stock Markets, Computerized Trading, Short Selling, Offshore Accounts, sovereign wealth funds, Bubbles, Depression ---- etc etc

Debt will be reduced one way or another. In the depression that was done by default and bankruptcy in a painful 25 year process.

http://www.leap2020.eu/GEAB-N-28-is-available!-Global-systemic-crisis-Alert-Summer-2009-The-US-government-defaults-on-its-debt_a2250.html?PHPSESSID=45

There is now chatter on the web about the US defaulting on all debt around July 2009.

It does not matter who is president - the world is heading into uncharted territory - there is no way to predict what is next or who would handle this better. Decisions will be made with flip of a coin.

Cancel all debt? Possession 9/10 of the law. Keep your house, car, furniture, business equipment. The government puts $10,000 into every personal checking account and 20% of the total that ran thru business accounts in the previous 12 months - then press reset button and the music starts again - different tune?????????

Done world wide all on one day.............

I know such a thing has never been done before. So what -- better than a 50 year depression.............

If you can't explain it to your mom it won't work

[Nick]

To Jet: I really encourage you to watch the documentary "the money masters". They explain how it is in fact possible to eliminate the national debt within two years, with zero inflation or deflation, by changing the underlying system. It boils down to this: The US borrows federal reserve notes from the *private bank* deceitfully called "The Federal Reserve", to which it is then indebted for the notes plus interest. Income tax in the US goes entirely towards just paying the *interest* on this loan--which is why the debt can _never_ go down. All the US treasury has to do is the following: For every Federal Reserve note in circulation, issue a new note, a "US Treasury Note" declared legal tender for all debts public and private (including taxes). As the Federal Reserve notes are called in, reduce the banking reserve ratio requirements proportionally until at the end of 1-2 years all Federal Reserve notes have been replaced by US Treasury Notes, and all banks have a 1:1 reserve requirement. The Federal Reserve will have all their notes back, and thus the debt will be paid in full. There can no longer be manipulation of the money supply by private banks as well, since there will be no private control of the money supply via fractional reserve banking. The US can control the money supply via a strict mathematical formula, public and visible to all, to enable a reasonable, steady growth, based on population among other easily quantifiable variables. The problem is that to get rid of the heavily entrenched giant bankers, you have to convince all the people in office that have been compromised by taking their handouts for the gain of private interests to cast aside the "giving hand"... Not very easily done. The problem before that is educating the masses that this really is the problem, and the best solution.

[usaproud]

The stock market will tank even more if Obama is elected, I also know of people who are not investing in the stock market now as they are afraid Obama may get the election, if he does no more stocks for me. I totally agree that the Obama factor is causing the stock market to dive as I see when McCain rises in the polls the stock market rises

[WayneSMT]

The bailout was never intended to be a "fix" all the bailout was for was to let the air out of the balloon slowly. It was a very old balloon held together with Scotch tape, old IBM Selectric film ribbons and chewing gum. If it popped abruptly it would rain down on everyones head like a flaming ticker-tape parade, in dry brush country.

As the numbers in the market go down, massive amounts of paper money are pumped into the system to make the numbers go up. An economic system or any system for that matter, is still a reflection of the real flesh and blood people that it represents. I am not expecting any positive change in my personal economic outlook from Barack Obama. The only thing I expect from him would be to help improve the image of the United States and by doing so, hopefully get about 5 billion people, whom I have never met, to stop hating me simply because I am an American.

[Nick]

This is exactly what Andrew Jackson did as president. His _entire_ campaign was that he would defeat the central bank, which he did. He did such a good job of it, and the people understood why it was important, that it took over 70 years before the bankers could establish another private, central bank--which is our current "Federal Reserve". Nowadays, very few people understand the problem. The system has been in place for so long that they have nothing with which to compare against, and even economy professors just accept it as the *norm*. Thus modern campaign platforms just bicker about what really amount to no more than band-aids. People like Ron Paul appear wacko to the masses when he suggests such a "radical" change of abolishing the central bank, simply because they don't remember that it's been done *twice* before, with good results! Jackson is probably rolling in his grave since they established the Federal Reserve, and worse, they put his picture on the $20 Federal Reserve Note--the bankers are mocking their past adversary and flaunting it!

[An0n]

Frederick -

You know you're right. The current economic crisis has nothing to do with lax regulation over derivatives or securities markets. Nor should we blame the Bush administration for running record deficits while eviscerating government agencies like the SEC or farming out oversight respobsibilities to the private sector (Moody's, S&P). In fact, this whole thing is the Democrats fault!!! Hell, everyone remembers when FDR caused the great depression!

[Nick]

The great depression was caused by the Federal Reserve contracting the money supply by over 85% within the span of four years. Plain and simple. A stock market crash cannot cause a depression. It merely wipes out the investors that were on the wrong end of the swing. The wealth is simply transferred to the people in the know, and to the few that were lucky. The wealth is never destroyed, merely transferred. The Nobel Awarding winning economist Milton Friedman has elaborated on this extensively in his career. Bernanke even explicitly admitted that Friedman was correct in his speech honoring Friedman's 90th birthday, back in 2002.

[Sam]

Nick: Stock investing isn't a zero sum game as you imply. When the US market recently lost 2 trillion dollars, no one was necessarily "on the other side of that trade". Think about it - prices are SET by the latest trade, which can be for 100 shares, but AFFECT millions or billions of shares outstanding. When bearish sentiment causes investors to value companies at 10x earnings, instead of 20x, the market can lose half its value without any large gains for anyone (there are usually many more longs than shorts). Of course, one could well argue that prices were too high before, that it was just funny money that was lost, but it is unsettling to those who had once dreamed of retiring on the funny money.

[James Monachino]

Duck and Cover --

The breathe and depth of the World Wide economic slow down is such that we may see:

* Aggregate World loses in Indices as high as 75%.
* Couple of bumpy years of bottom searching.
* Slow upward recover.
* Non-tradition equity leaders.
* Up to 10 years of price consolidation before new highs are able to challenge old record highs.

Cash is king in this emerging World Wide Deflationary environment.
Beware: the old fashion inflationary remedies of the past will be dangerous to your financial health.

[Nick]

Sam:
Correct. Stock investing is actually a negative sum game. It's like a poker table, with buyers, sellers, the tax man, and the brokers.
Every time there's a trade, the broker takes a fee off the table, and the tax man wanders around the table taking money from everybody's pot as he sees fit. But, for every trade, there is a buyer and a seller.
You are also correct about how prices are set. But, again, for every trade there is a buyer and a seller. If I excercise options in a company pre-IPO for $1/share, I have effected a trade. If that stock goes to $100, then loses half it's value, I'm still _up_ $49/share.
Now, if the value of the stocks implode, no one loses a dime unless they sell and lock in their loss! They can always hold until prices go back up (unless they traded on margin...). It is only funny money, paper value, until traded for cash.
No one dreams of retiring on funny money. They dream of their funny money being valued enough to trade for enough cash to retire on...

[martscan]

Its 12:00 pm, ET, NO ONE can tell where this mkt will close today, yet we have soothsayers telling us what the mkt will do as a result of the election. Markets do what markets do, they go up and they go down...has anyone ever met a horse that knew what its price was going into a big race?

[pochoprieto]

Technically, the market looks like it my go down to around 6,000 on the DOW.