With a $6 a barrel drop in oil prices, this was supposed to be one of the best days of the year for the stock markets. The Nasdaq opened up 55 points at 2,402 and then reversed itself to trade down .5% at 2 PM. The S&P 500 moved up almost 20 point in early trading and then swung down .2%.

The market has made a simple decision. The economy is not getting any better. It is getting worse. Oil at $110 will not help enough to offset falling personal income, rising unemployment, a tough housing market, and attrition in corporate spending.

Tech was supposed to be the last sector to fall in a GDP pull-back. Today, Intel (INTC), Cisco (CSCO), Apple (AAPL), RIM (RIMM), and Ebay (EBAY) are all off. If the market does trade based on its view of the state of companies six months in the future, tech earnings will be mauled by year-end.

Wall St. also turned against the weakest members of the financial sector. Rumors that the Korea Development Bank would take a stake in Lehman (LEH) encouraged traders to believe that the company still had some partially hidden value. Lehman’s stock moved down over 2% despite what should have been viewed at a positive development. Merrill Lynch (MER) sold down as well. The thin line of traders who believe that the worst in write-offs is over has been breached.

It is becoming harder and harder for investors to see rallies as built on anything other than sand.

Douglas A. McIntyre

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