The market endured its fifth straight losing session on Tuesday after a couple of gloomy economic reports set the tone for the day. The Dow managed to get off to a good start and traded to a high of 8,600 before falling 100 points, to close at 8,419. So much for the Santa Claus Rally.
The Nasdaq dropped 11 points to finish up at 1,521. The S&P 500 gave back 8 points and settled at 863. Trading volume has been light this week as many on Wall Street are on vacation for Christmas. Expect an even lighter day today as the market closes at 1pm EST.
Back to Economics 101. The most disturbing economic report was the fact that sales of new homes fell to the slowest pace since 1990, while prices of new homes dropped by the biggest amount in eight months.
Sales of existing homes fell nearly 9% in November to an annual rate of 4.5 million from a downwardly revised pace of 4.9 million in October. Naturally, the numbers were off and basically means we’ve got an 11-month backlog. I don’t see a turnaround in housing until next summer but with mortgage rates starting to pop up under 5%, we could get a wave of new first-time buyers.
Feeling left out, the Commerce Department also wanted to be the bearer of bad news as it chimmed in saying 3Q gross domestic product fell at an annual rate of 0.5%.
Oil prices dipped below $38 a barrel and there’s talk they could be headed below $30. I’m not sure what the Vegas over/under is for oil but there are many on Wall Street that see the recession worsening (really?). People are driving less and staying home more often. With winter in full force, I’ll take the under.
And if you hear folks talking about gas falling below $1 tell them you got the scoop. Oil would need to get below $20 for that to happen so if we can get to $30 we could see $1.25 for gas, depending on where you live of course.
With the market closing early, I wanted to take this time to wish everyone a Happy Christmas! Thanks to all of you who continue to read the blog and send me emails. If you haven’t sent me an email, again, my inbox is always open to any questions you may have about options or the market in general.
Ho, Ho, Ho, I’ll be back Friday!
Rick Rouse
Rick@OptionsMentoring.com
Dow Breaks Losing Streak
Friday, December 26th, 2008
The market managed to do a little something on Wednesday as Wall Street enjoyed the holiday and looks forward to 2009. After a slow start the Dow managed to pull out a gain of nearly 50 points on the strength of the financial stocks. The Dow’s close of 8468 represented the end of a five-day losing streak that started when the index touched 9000.
As we have witnessed over the last month, the Dow seems stuck in a trading range of 8000-9000 and we have done well trading within this range. Matter of fact, we have done well all year as we have nailed a lot of trades. I have been harping on the fact that the Dow can’t hold 9000 but at the same time the index has held above 8000.
On November 21, the Dow hit a low of 7400 while the Volatility Index (^VIX, 44.21, down 0.81) had soared to a high of 80. This was the day the bailout package had originally gotten squashed only to have it revived a few days later with an estimated $800 billion price tag. Although it’s hard to say if this was the “real” bottom, it has provided temporary support if nothing else.
The VIX has fallen roughly in half while the Dow has only managed to gain 1000 points off its low. Obviously, this is why the they call it the volatility index and with trading volume slowing down, the market has stayed in this trading pattern. This has caused the VIX to stabilize as well.
And we should remain this way for the rest of the year unless we get some type of major announcements. However, what will January bring us? There will be fourth quarter earnings due out, a new president will take office, and companies will try and give a clear picture of what 2009 will hold for them. Earnings will be important but Obama will be the wild card.
Oil and the dollar will also be factors but the market will need plenty of good news if it expects to get off to a good start. Many traders will be glad when 2008 is in the books as there were a ton of investors that got swallowed by the market… trying to go both long or short.
With the way the “new” market has become it is imperative that you watch your positions on a daily basis. Check your quotes three, four, or five times a day if you have to. We were successful for calling a lot of right moves because we watched (and blogged) about the market like a hawk.
If you aren’t educated about options and how they work, then you are swimming against the current. With pensions funds vanishing and 401K’s getting wrecked, why wouldn’t you want to manage your own retirement account? That’s what we teach here. We teach you how to manage a portfolio where your results are based on what you do. I like those odds and I’ve liked them ever since I dumped my broker back in the 90’s.
As you look towards 2009, ask yourself where you want your portfolio to be. Take the time to learn the market and how options work. Start slow if you are new. Eventually you will get there.
I’m working on a 2008 year-in-review blog for next week so my entries will be light as we wind down the year. I’ll try and cover all of the jaw-dropping events that took place and I’ll review how many of our option trades fared for 2008.
Look for a so-so day on Wall Street. Most of the market veterans took the day off and just made it a long weekend.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Oil, stock market commentary, VIX
Posted in Market Analysis | 1 Comment »