After fronting a 6-week rally in the equities market, the banking sector set the stage for steep losses today. Bank of America (BAC) contributed to early weakness after confessing that credit-loss provisions more than doubled during the first quarter. "Credit is bad and we believe credit is going to get worse before it will eventually stabilize and improve," warned CEO Kenneth Lewis during a conference call with investors. These same concerns contributed to a sell-off in Citigroup (C), with Goldman Sachs analysts Richard Ramsden and Brian Foran warning that credit losses at the bailed-out bank are increasing rapidly. Fox-Pitt Kelton analyst David Trone also piled on, predicting that Citi won't return to profitability until "sometime in 2010." The onslaught of gloomy commentary spooked investors, who rushed to take profits off the table. The resulted wave of selling pressure pushed the Dow to a triple-digit loss almost immediately, with the blue chips surrendering their foothold above the 8,000 level within the first 10 minutes of the session.
The Dow Jones Industrial Average (DJIA – 7,841.73) extended its losses throughout the session, and finished within 1 point of its intraday nadir. The Dow shed nearly 290 points, or 3.6%, as all 30 of its components declined. Bank of America and Citigroup paced the day's drop, followed closely by fellow financials American Express (AXP) and JPMorgan Chase & Co. (JPM). The blue-chip barometer finished the day south of its 10-day and 20-day moving averages for the first time since March 9.
The S&P 500 Index (SPX – 832.39) endured an even heftier daily drop, giving up 37 points, or 4.3%. Unlike the Dow, the SPX is still perched above recent support from its 20-day and 10-week moving averages. Finally, the Nasdaq Composite (COMP – 1,608.21) joined in the sell-off by shedding approximately 65 points, or 3.9%. Nevertheless, the tech-heavy COMP maintained its foothold above the round-number 1,600 level.
Turning to equities in focus, Principal Financial Group (PFG) dropped sharply in today's downbeat session, despite a bullish endorsement from Barron's ... Pessimistic option players are zeroing in on News Corp.'s (NWS) May 10 put ... Rising implied volatility might have inspired investors to sell puts on DirecTV (DTV) ... Coincidentally, Andrea Kramer took an in-depth look at this neutral-to-bullish option strategy in today's installment of Options 101 ... Suncor Energy (SU) is set to report earnings this week, and call volume is accelerating ahead of the event ... and today's Quote of the Day comes from Meghan McCain, daughter of Senator John McCain, who's emerging as an outspoken political observer in her own right. In this Daily Beast blog about "creepy" Twitter users, McCain reported that one of her followers on the microblogging site is Maricopa County Sheriff Joe Arpaio, author of America's Toughest Sheriff. After Arpaio advised her to "go easy" on her opponents, McCain drily observed:
"It's really scary when the guy... whose most visible public relations success involves pink underwear, boxers, and handcuffs tells you to tone it down."
But these weren't the only headlines hitting the Street today. Click on the links below for our Daily Market Blog coverage of:
And, in case you missed it, Andrea Kramer explained the 3 different ways your option can expire in this week's edition of The Fundamentals of Trading. Click here to watch the video.
For today's activity in crude oil, gold futures, options, and more, turn to page 2.
The Case for Big Moves in IWM and QQQ
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