Sam Collins

More Selling in Store?

by Sam Collins   09/30/08

What the Markets Are Saying

September is not noted as a historically strong month for the market, but September 2008 will be remembered as the market's worst since 1950 (according to Dorsey Wright Assoc.), currently down 13.75% with one day to go.

But the good news is that it doesn't even make the top-10 worst months going back to 1930. The worst month ever was September 1931, during which the market was down 29.9%. Does that make us feel better after yesterday's bashing?

And a bashing it was. Fear hit record numbers with the CBOE Volatility Index (VIX) closing at an all-time high of 46.72, up 26.07, and the Nasdaq 100 Volatility Index at 49.56, up 12.71, the highest since 2002 (good news). The Dow (DJI), S&P 500 (SPX) and the Nasdaq (NASD) all closed at their low of the day and each penetrated its prior reversal low made on Sept. 18.

Yesterday's close on the S&P ran into the support zone that was established from January to November 2004 at 1,060 to 1,163, with the key Fibonacci 61.8% number at 1,078. But as noted several days ago, a break of the Sept. 18 low at 1,134 puts the market into free-fall and that means that most support zones become meaningless until a period of stabilization occurs.

We are now in a classic, third-stage, bear-market sell-off that will no doubt set a meaningful reversal low very soon. Emotional selling climaxes like this often occur as a result of forces outside of the normal economic and corporate financial patterns. Most recently the Sept. 11 attacks caused a final flushing of the last tenacious holders from that market and resulted in the bear-market lows of Oct. 10, 2002.

And the current sell-off has all of the characteristics of an "outside-of-the-normal" final flushing of the markets too. The financial mess and the destruction of Wall Street's corporate icons have created a final phase sell-off with all of the characteristics of high volume, irrational selling at any price and huge fear readings from the market's sentiment indicators.

No doubt there could be several more days of mass liquidations until Congress gets around to its next vote. But there could also be times of startling relief as the big money institutional crowd grabs for bargains -- today could be one of those times.

But unless by some miracle Congress is able to put an emergency relief package back together again soon, my guess is that the S&P 500 (SPX) will fall to at least the bottom of the next support zone at 1,060 and possibly even to 1,000.

Yesterday was the second-worst percentage fall in the S&P on record, down 8.81%, with the worst day set in the crash of 1987. However, those investing then will remember that within one year, those losses were totally erased as the market romped off to new all-time highs. And yes, this too shall pass.

But it is now probably too late to sell, though it may not be too early to buy high-value blue chips that will become cornerstones of a successful portfolio.

Today's Trading Landscape

Earnings to be reported include: Collectors Universe (CLCT), Landec Corp (LNDC), Pepsi Bottling Group (PBG) and Xyratex Ltd (XRTX).

Several economic reports are due including: the International Council of Shopping Centers (ICSC) Chain Store Sales Index for Sept. 27, the Redbook Retail Sales Index for Sept. 27, the July S&P/Case Shiller Home Price Index, the September Chicago Purchasing Managers' Index (the consensus expects 53), the September Conference Board Consumer Confidence and the ABC/Washington Post Consumer Confidence for Sept. 28.

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Sam Collins can be reached directly at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.