Market sell-off: The 7% solution?
Last week’s sharp sell-off has, not surprisingly, left the weekly trend picture mostly negative. Only the Commodity Research Bureau Index, the iShares MSCI Japan Index, and the Materials and Utilities Sector SPDRs are showing any signs of strength, and most of them are mixed at best.
As always, the news media dutifully reported the reason(s) behind the market’s move:
- Stocks Plunge on Drop in Chinese Market
- Computer glitch adds to market uncertainty
- Greenspan warns of likely U.S. recession
- Steep Drop in Orders for Durable Goods Disappoints Wall St.
- Stocks drop on lending, housing jitters
- Japanese Data May Put Yen Back On The Block And Fuel Equities’ Decline
- Stocks open sharply lower on China, Cheney
Notwithstanding the aforementioned series of unfortunate events, the market was due – some say overdue – for a correction. On a positive note, the major indices are almost, but not quite, back to the oversold levels that they last saw in June/July of last year, near the bottom of the last intermediate-term correction.
Technically, however, this down move appears to have further to go, and if so, the question is “how far?” Near-term support levels on the major indices appear to be at about 1350-1360 on the S&P 500, 2300-2330 for the Nasdaq, 790-800 for the Russell 3000, and 11,800-11,900 on the DJIA – which would represent an average decline of about 7-8% off the recent highs.
If these levels don’t hold, then the market could well experience the long-predicted 10% correction, or worse. The next lower important support levels for the major indices are about 1300-1320 and 1230-1250 for the S&P 500, 2200 and 2050 for the Nasdaq, 760-770 and 720 for the Russell 3000, and 11,400-11,500 and 10,700 for the DJIA.
New positions
Automatic Data processing (ADP) – On Tuesday I sold some March 50 puts on ADP as the stock dropped along with the rest of the market:
Downside support appears to be about 47-1/2 and 45, while upside resistance appears to be at about 50 and 51-52.
Caterpillar (CAT) – On Tuesday I sold some March 65 puts on CAT as the stock dropped along with the rest of the market:
Downside support appears to be about 62-63 and 60, while upside resistance appears to be at about 67-68.
CSX (CSX) – On Monday I sold some March 40 puts on CSX as the stock sold off late in the day:
Downside support appears to be about 35-35-1/2 and 34, while upside resistance appears to be at about 37-1/2.
DaimlerChrysler (DCX) – On Tuesday I sold some March 65 puts on DCX as the stock dropped with the rest of the market:
Downside support appears to be about 65 and 63, while upside resistance appears to be at about 69-70.
Dow Chemical (DOW) – On Tuesday I sold some March 45 puts on DOW as the stock dropped with the rest of the market:
Downside support levels look to be about 41-42 and 40, while upside resistance appears to be at about 44-45.
Gerdau S. A. (GGB) – On Tuesday I sold some March 17.5 puts on GGB as the stock dropped with the rest of the market:
Downside support appears to be about 15-1/2 to 16, while upside resistance appears to be at about 16-1/2 and 17-1/2.
Kroger (KR) – On Tuesday I sold some March 25 puts on KR as the stock dropped with the rest of the market:
Downside support looks to be around the 23-24 area, while upside resistance appears to be at about 26-27.
Watchlists
Despite the weak market, plenty of stocks still managed to show up on the “upside strength” scans this week, including Arrow Electronics (ARW), Bally Technologies (BYI), Cooper Tire & Rubber (CTB), JAKKS Pacific (JAKK), Methode Electronics (METH), Mine Safety Appliances (MSA), NRG Energy (NRG), Premiere Global Services (PGI), Pepco Holdings (POM), Republic Airways Holdings (RJET), Tractor Supply (TSCO), and Western Refining (WNR).
And, as might be expected, more stocks of interest are beginning to show up on the “oversold” scans, including 3M (MMM), Bank of America (BAC), Citigroup (C), Intel (INTC), Johnson & Johnson (JNJ), Merrill Lynch (MER), Pfizer (PFE), Sysco (SYY), and United Parcel Service (UPS).
