Aside from another little flurry of trading action in the closing minutes, it was a downright ugly day. Yes, volume was light, but I'm afraid that may be a function of little new money coming into the market and may not be that much of a positive. Unfortunately, lower volume may mean we are losing participants rather than just folks sitting on the sidelines. There is no way to know for sure, but this light volume is not something giving me a lot of comfort.
We are still holding some key technical support levels and have gotten a bit oversold now, but the danger of breaking lower is growing. We may see a little bounce first, but earnings season could easily be the catalyst that causes the last support levels to hold. The November lows are still quite a ways off, and we'll be way too oversold to hit them quickly, but the lows of December could easily be breached in the near term.
This market was much worse today than it looked, especially the way financials broke down. The big banks are low-priced, and therefore the big losses were not reflected in the Dow Jones Industrial Average.
I really wish the media would stop using the DJIA as the primary indicator for the stock market. They way it is calculated, it assumes that you are not holding an equal amount of each stock in the index but that you hold widely different size positions based solely on price levels.
For example, at current prices the DJIA assumes that you hold 15 times more IBM (IBM) than Citigroup (C) , because IBM is $85 and Citibank is $5.60. Thus, on a day like today when Citi is down 17%, the impact isn't that great, because it is mostly offset by a gain in IBM of 1% or so. That is not how a normal portfolio is generally constructed, so the DJIA isn't really reflective of anything meaningful.
Nonetheless, it is just plain ugly out there, however we are a bit oversold, if that's any comfort.
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