Top Line: Our theory of a market rally may have been thwarted by INTC this evening as the market did not like what it heard. We will see if the market has any follow through in the morning. If there is follow through such that a noticeable downward gap occurs, then our thinking would be that the market will have dropped below the August lows. Right now, it seems to be sitting right on that low, especially in the Dow. Yes, technically the Dow traded below the August low but the break now needs to occur.
To continue that thought, there seems to be only one thing between a large drop and a bounce on Wednesday morning, that would be an "unexpected" Fed rate cut. Even then, the market sort of already "expects" it. On top of that the market, and probably the Fed, may think that a mid-meeting rate cut could be received poorly by the market. Why, wasn't it just a few weeks ago the Fed told us there was going to be no recession? Now, it seems the market is screaming for a rate cut, and a big one at that.
You undoubtedly have heard about the drop in the market on Tuesday so we won't bore you with the details of AAPL and C, you can read about that on your own. What happened after the market closed is what is of interest to us this evening--INTC.
Yes, INTC announced their earnings for the quarter and gave some forward looking statements which the market did not particularly like. This news has driven the futures market down this evening but as we write has come back up a little. The NASDAQ 100 futures were down over 40 points earlier (compared to about a 55 point loss during the day) and now they are only down about, well, 30 points. Still, a large point decline, which could lead to a very harsh opening in the morning.
Wednesday should be a day to remember in the US stock market. If we do get an rate cut from the Fed or we just fall out of bed, the market should provide much to talk about in our regular Update scheduled for Wednesday evening. In any event, it should prove to be important to the overall trend. In fact, if it goes down enough, it could actually be a selling climax and come back by the end of the day. Wednesday will give us a chance to see what the market wants to do.
As we have said, and we have to say again, the worst selloffs occur when the market is oversold. With the market down most days in 2008 and steeply sold on Tuesday, there is a tendency for people to think this is a buying opportunity. If disappointment in that thought happens, the market will fall out of bed, hard. We really can't say tonight, except that it will be something to see. Buyers have been disappointed all year so far and that could lead to a vicious selloff. Stay tuned.
We received an email from one of you, thanks CM, that references a page that talks about the volatility index (as well as a few other things), something we mention here from time to time. We have noticed that this index has hardly moved from where it's been in the recent weeks, even on Tuesday. This would seem to suggest that the market is Not done going down. Until we see a good spike in the fear factor, we won't have a meaningful bottom. This would mean the VIX would spike to 60 or more, at least up to 40 or 50.
FSI: 94.96 (not a new low for the move but after hours trading would be)