Daily Market Reports | Nov 14 2008
By Greg Peel
The Dow closed up 552 points or 6.7% while the S&P closed up 6.9% and the Nasdaq 6.5%.
It was a choppy morning of trade which found the Dow square at midday, but then it plunged dramatically to 7969 at 1pm – a fall of 300 points which took out the previous closing low. The Nasdaq also took out its previous low, and the S&P 500 took out both its closing low and intraday low. We were at the abyss. Would Wall Street jump?
The impetus for the drop was some more bad corporate news, and the market mood has been to the weak side lately as one by one companies have come out with poor results or poor guidance. Last night Intel dropped its fourth quarter revenue outlook by 17%, Wal-Mart lowered its full-year guidance, and rubber clog maker Crocs posted a US$148m loss and warned of more ahead. Crocs shares fell 40%.
We also had the weekly jobless claims numbers last night, and that rose 32,000 to a monthly average 491,000 of new weekly claims – the highest level since 1991.
And so Wall Street sold, and sent the indices through their technical support levels. At such a point, it is possible for the fall to then pick up momentum. For most of this month there have been many on Wall Street suggesting that the market needed to re-test its previous lows, and shake out frightened longs, before it could stage any sort of relief rally. And so the trumpet sounded. There has been money waiting for this opportunity, and in it came.
The Dow quickly regained its loss and added 250 points to the upside. But at 3pm the selling returned. There are still plenty of traders looking to sell into rallies. The Dow slipped back to be up only 40, but this time the buyers were not going to be defeated. The index began to creep up once more, quietly gaining momentum.
Was this it? Had we seen the bottom? The market was not going to take the risk and miss out. In they came in numbers and a scramble began. By the last half hour the shorts decided it would be safer to cover and the index surged to almost 600 points up before settling at a close up 552 on the day. That marked an 850 point rally in the session from the low point.
While volume was not excessive, it was a bit healthier than what we’ve seen over the last couple of weeks. Once again it must be said that experienced traders prefer smaller gains on bigger volume to be more confident of a decent rally commencing, but the technical significance of last night’s reversal is nevertheless not to be dismissed. What experienced traders do know is that if a bear market rally gets a head of steam it can run very far, very fast. That’s clearly what Wall Street was worried about last night. If the train was leaving the station everyone was running to jump on.
Commodities markets received a boost from a weaker US dollar last night, but either way are now tied pretty closely to stock market moves. Oil shrugged off a big jump in weekly gasoline inventories to rally US$2.04 to US$58.20/bbl. Gold jumped US$17.30 to US$728.00/oz. The Aussie surged two and a half cents to US$0.6630.
Base metals initially leapt in London on a weaker dollar, but lost momentum when Wall Street was at its weakest. The LME closed before the big surge in the Dow, leaving aluminium and copper slightly higher while nickel and zinc added 4% and lead 7%.
The SPI Overnight gained 157 points or 4.2%.
So, NOW have we seen the bottom? Another element to last night’s rally was the fact the G20 meet in Washington tomorrow to address a coordinated effort to further stabilise global financial markets and work towards a framework that would prevent another credit bubble and burst occurring. While no one expects the G20 to work miracles in one session, there was nevertheless a feeling on the floor that it would be foolish to carry short positions into the meeting. Throw in the technical turning point and the need to cover shorts suddenly became urgent. And thus we had an 850 point rally.
We will therefore need to wait and see what transpires tomorrow. But one can only say we’re looking slightly healthier after last night than we have been for a while.
