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Last week was another brutal week for the markets. The Dow lost 817.75 points; SPX dropped 113.78 points; Nasdaq tumbled 235.95 points! The commodity sectors crashed and the techs continued to be weak. On Monday, House voted down the rescue plan and the Dow lost 777 points; it's largest single-day drop ever. On Tuesday, the market bounced back. But, it didn't last. On Wednesday, the market waited for see what the Senate would do with the rescue plan. On Thursday, even though Senate passed the rescue plan, the market slumped, with the commodities leading the sharp drop. On Friday, the market poped up early, but, reversed its course and closed at the day low, as the rescue plan was passed by Congress and signed by President Bush.
Last weekend, in my Market Forecast, I said,
"For the new week, we will have to see how the market reacts as the fate of the rescue plan progresses. The market seems to still be in an undecided mode, just waiting to see the details of the finalized plan, and of course, whether or not it'll get approved. VIX is still pretty high, just below 35. It'll have to get pushed below 28 to start turning its daily MAs. From where it is right now, VIX could still easily pop back above 40."
Even though the rescue plan was eventually passed, the decision by the House to vote it down on Monday proved to be devastating for the confidence on the market. The market sold off as the plan was finally passed on Friday. VIX popped back above 40, closing at 45.14.
Let's see where the market stands:
SPX
SPX dropped 15.05 points to close at 1099.23, below the 1100 level. The daily MAs and MACD continued lower.
Nasdaq
Nasdaq fell 29.33 points to close at 1947.39. Its daily MAs and MACD went lower.
Both SPX and Nasdaq are looking very bearish, closing below significant support levels (SPX 1100; Nasdaq 2000). Both indices are also riding their respective daily lower BB down. For the new week, earnings are starting to come in with AA on Tuesday and MON on Wednesday. There are some talks about Fed cutting interest rates, but, UUP chart is looking pretty strong (see Sector Watch). VIX has room to top 50 this week. Overall, the sentiment on the market is very bearish, and, with a high VIX, it will likely be another volatile week.
Sector Watch
UUP (dollar)
UUP made a huge gain last week, even though the equities market were very weak. Its daily MAs are curving up again and it is catching up to its daily upper BB. It looks very strong. So, perhaps we won't get an "emergency" rate cut?
GLD (gold)
After its 1-day $90 pop 2 weeks ago, and a subsequent rise above $900/ounce, gold prices have fallen back down. GLD lost ground last week. Its 10-day MA is curving down again. It looks like that $88-90 range is still a big resistance. GLD still looks to be range-bound.
USO (oil)
USO barely managed to close above $75. This is a crucial support level for USO. Below this level, USO could fall to $50! We'll be watching the range $70-$75, giving this support some leeway for the volatility.
Since most individual sectors on the stock market seem to be following the broader market movements, we'll pay more attention to the overall market strength. I do want to share some very intelligent comments made by some of our members in our Trading Room last Friday:
Bagger Vance
wild action today, i'm still on sidelines here.
Vinaydh
Awesome day, traded what I saw rather than getting distracted by the bailout circus!!
Bagger Vance
mr sparkle, bottoms are always called in hindsight. I prefer not to search for tops/bottoms...that's a loser's game. How many bottom callers over the last month have checked out permanently? My guess is many.
Also, take a look at the VIX on Friday:
VIX (5 day 15-minute charte)
As we can see here, after the morning pop on Friday, VIX had already reached a bottom on the 15-minute chart. Even if the market had maintained its strength, the charts told us that there was very little room for the market to rally higher. Since the overall sentiment was still very negative, the path of least resistance was down; and, the market sold off after the rescue plan was passed. So, staying on the sideline and perhaps playing some puts were the right things to do on Friday. Great calls and great trading, or "non-trading", guys!! And, kudos to those who made profits on a wild day! 
Good night and HappyTrading! ™
