Usually you would think that a 400 point drop or a 500 point drop in the DJIA (NYSE: DIA) implies that capitulation is upon us. Right now, the word “hopefully” comes to mind as the greatest common market belief as investors scramble to raise cash. Friday’s “gap and crap” open posed a real problem because gap-up opens just act as yet another trap.
At almost 2:30 PM EST we have the DJIA down -535 at 10,908 under the 11,000 mark. The NASDAQ is down 164 points at 2,367 (jeez, is it the year 2,000?) and the S&P 500 (NYSE: SPY) is down 73 at 1,126 on the day. That is worse than 5% selling in the DJIA and worse than 6% in the S&P500 and NASDAQ. Bank of America Corporation (NYSE: BAC) is now the ultimate market drag… -18% at $6.67 on almost 500 million shares.
If you want to know just how bad the selling is, the VIX is now up 33% at above 42.00 and here are some of the most recent VIX cycle peaks over more than the last two years:
- Mar 16, 2011 31.28
- Aug 25, 2010 28.92
- Jun 29, 2010 35.39
- Jun 08, 2010 37.38
- May 21, 2010 48.20
- Nov 02, 2009 31.84
- Oct 02, 2009 29.56
- Mar 06, 2009 51.95
The selling picked up after President Obama spoke today regarding the U.S. downgrade. His insistence that the United States remains “AAA” just because Warren Buffett says so does not lend a climate of rebuilding faith.
What you are seeing is some obvious forced liquidation or margin calls from hedge funds. This is one of those climates where arbitrage and other traditional strategies are just not working.
Sorry to merely simplify this, but this is becoming disgusting all over again. This is one of those situations where “value” and “bargains” just don’t matter.
JON C. OGG
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