Top Line: As mentioned, the 12,750 area in the Dow has provided some strong resistance. That resistance line got a little help from the shocking UBS downgrade, from "buy" to "sell", of American Express (AXP), a member of the Dow Industrials. In our last post, we mentioned the "throw-over" which did Not happen on Monday. The market is setting up to do that over the next couple of days and then we should see the end of the upward "correction". It should be down from there, with "there" being somewhere just over the 12,750 area. Or, the market will just go down from here. Either way, the market should be heading south soon enough.
There isn't much to mention about Monday's trading except that it was heavy. With the AXP downgrade, even the techs decided to slump. This didn't really seem likely after Monday's trading in Asia, which was strong.
As for AXP, it represented the lead dog in Monday's down move. Looking back over the past few weeks as stocks have moved up, the financials have been the backbone of the move. Even though they dropped hard into the middle of January, their bounce has been strong. Two months ago AXP traded near 60 and two weeks ago it was near 40, a stunning third cut out of it in about six weeks. The rally took it back over 50 late last week so today's 2 point drop, while large, didn't dent the latest up move. Other financials have done mostly the same thing including the homebuilders.
After the market closed, there was some more deterioration in prices. The overnight US futures are down a little which sets us up for a down opening and then maybe a bounce to get this rally phase over and done.
Our FSI (Four Speculation Index) has the four horseman in it. Those four are GOOG, AAPL, AMZN, and RIMM. It has been "normalized" to a basis of 100 from back on October 22. GOOG had been trading at 650 that day and traveled up to around 741 at its high. On Monday, GOOG closed down about 20 to a finishing price of under 500. This helped the FSI to close at its lowest point since October's inception date. The highest closing level of FSI was 111.86, the day GOOG closed at 741.
We recommend reading a housing article from our last post. They are sobering and should give you an idea that a recession is almost unavoidable and that deflation is coming.
FSI: 77.12 (ouch)