After a tentative snapback rally yesterday, the stock market got spooked today as it gave up all of yesterday's gain and more. Drops in both September personal income and spending reminded investors that yesterday's 3.5% GDP growth number was probably due to temporary government stimulus programs and that the economy might have deteriorated toward the end of the third quarter. Fear escalated as VIX jumped nearly 6 points to 30.69, the highest since early July. The heightened volatility was reflected in price movements. The DJIA finished down 249.85 points (-2.51%) at 9712.73. The S&P 500 tumbled 29.92 points (-2.81%) to 1036.19 while the NASDAQ slid 52.44 points (-2.50%) to 2045.11. All three major indexes dipped below their respective 50-day moving averages at the close.

  

Breadth was ugly and also gave up more than yesterday's gain in net advance/decline issues. Decliners outnumbered advancers by a 13 to 2 ratio on the NYSE and by a 21 to 5 ratio on the NASDAQ. Volume expanded again on the downside. About 95% of the volume was on the downside on the NYSE while more than 90% of the volume was down on the NASDAQ. The dollar index gained as the negative correlation between the dollar and equity market remained intact. The financials led the decline as a CIT bankruptcy looks imminent on Monday and C announced a $10 billion Q4 writedown on tax deferred assets.

  

There wee technical breakdowns across the board as we closed out October. Momentum measures, such as advance/decline lines and volume, made lower highs when the DJIA reached its recovery high a little over a week ago and they've now attained lower lows on a month-to-month basis. Among the major indexes, while the DJIA and S&P 500 are above their early October lows, many other indexes such as the DJ Transports, NASDAQ, and Russell 2000 have broken their October lows and are solidly under their 50-day moving averages. It is very likely that the DJIA and S&P 500 will follow the rest of the market falling below their October lows.

  

There was a change of character in the market this week from “buy the dip" to “sell the rally". Stocks are oversold and could rally some next week. However, be very defensive. Rising volatility tends to justify quick trades.

  

Next week will be a busy one on the economic front with the release on ISM Index on Monday, the Fed decision on Wednesday and the October jobs report on Friday. Watch for support for the S&P 500 at near 1020, its October low, followed by the round number 1000.

 

Significant Numbers To Watch

 

9430 - Support, the 10/02/09 low

10310- Resistance, the 10/34/2008 low

9711 - 50-day simple moving average

8585 - 200-day moving average

 

1021 - Support, the 10/02/09 low

1098 - Resistance, the 10/03/2008 low

1051 - 50-day simple moving average

917 - 200-day moving average

 

2040 - Support, the 10/02/09 low

2318 - Resistance, the 10/03/2008 low

2091 - 50-day simple moving average

1784 - 200-day moving average