Daily Wrap-up - The Dow Jones Industrial Average Loses 777 Points

The day ends with the Dow Jones Industrial Average (DJIA) down 777 points. As discussed below, we had an initial selloff on the bailout plan vote. That was followed by a brief stabilization but as the intraday charts below show, the selling pressure picked up as the day wore on.

To put the day's losses in perspective, I pulled the data at the right. It shows the largest percent drops for the S&P 500 (SPX) and Dow Jones Industrial Average (DJIA), going back nearly 30 years. For the Nasdaq Composite (COMP), I pulled data from 1990. If you look at the returns below for today and compare those to the table at the right, you can get a sense of the severity of the moves.

A look to the sector chart shows that only bonds and gold were immune to the selling pressure. The iShares Treasury Bond (TLT) surged 2.9% while the streetTRACKS Gold (GLD) gained 3.3%. The rest of the field is a sea of selling pressure. Even though there was a flight to gold, the Amex Gold Bugs Index (HUI) still lost more than 2%. From there the losses skyrocket with a number of groups posting double-digit declines. The Broker/Dealer Index (XBD), Regional Bank HOLDRS (RKH), Oil Service HOLDRS (OIH) and Natural Gas Index (XNG) were among the hardest hit.

As noted in the previous post, the VIX pushed to a new annual high today. The table below shows we have a single day spike of more than 34%. However, as I discussed earlier this month in this post - A New Annual High for the CBOE Market Volatility Index (VIX) - Now What? - I think there are two key points to keep in mind. The first is in regard to the length of time that high readings can be sustained. The second is that we are in a fairly rare market environment. My takeaway on the VIX remains the same - I think that being aware that the high readings is good information to know, but I don't think that is enough. From my perspective, I would need to see some signs of life from the market.

Chart Courtesy of Thomson Financial

Chart Courtesy of Thomson Financial

Click here for symbol descriptions

As far as the daily charts of the broad market indices go, the picture isn't pretty. The S&P 500 (SPX), Dow Jones Industrial Average (DJIA) and Nasdaq Composite (COMP) have firmly broken their July lows. As I was pondering the significance of this technical breakdown, I started to think about what I said two weeks ago -

"I am wondering if we do in fact need to see a break of the July lows. From a chart perspective that would extend the downtrend that has been in place since October 2007 but it could finally allow us to hit that capitulation point where the weak hands finally throw in the towel. I know it seems counter-intuitive to "want" to see a breakdown, and maybe I am dead wrong about it, but I think we need to break this pattern of slow bleeds. A sharp sell off could help achieve that. I remember sitting on our trading floor when the market was halted in October 1997. At that point it felt like the entire world was imploding. It was also the bottom."

That wraps up my thoughts for tonight. I need to sleep on all this...

Chart Courtesy of Thomson Financial

Chart Courtesy of Thomson Financial

Chart Courtesy of Thomson Financial

Chart Courtesy of Thomson Financial

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