6/4/2010 DJIA Down 250 Pts.

Then Bounces Back …

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DJIA Down 250 Pts.Then Bounces Back Up

Fears over European banks, tensions between Koreas, and a fear that housing may create a new bottom spurred massive selling in the get go. The Dow dropped
more than 250 points after the opening bell and stayed under 10,000 most of the day, then charged back to finish down only 22 when signals from Washington
suggested that banks would not be forced to sell their lucrative derivatives units as part of financial reform. The S&P even managed a slight gain. During the
session, the broad market gauge had fallen as low as 1,040, its lowest level since late November.

But more turbulent days are likely. The market worries that even austerity measures by European governments will not be enough to fix the problem and fight off
a prolonged economic slump in Europe, or even another global recession. It seems like the Europeans are playing ‘tag, you’re it’. First it was Greece, and now
it’s maybe Spain, Portugal or Italy. There has to be someone next. Britain’s Queen Elizabeth opened Parliament with a warning of hard times, saying in a speech
on behalf of Britain’s new government that there would be budget cuts because “the first priority is to reduce the deficit and restore economic growth.” Other
European countries are imposing budget cuts as well, trying to control their debt. Investors are concerned that these steps will stifle economic growth, and that
the growth of other countries, including the U.S., will inevitably be stunted. Tuesday’s action had Italian, Portuguese and Irish stock markets joining Spain and
Greece in bear-market territory, down 20% and more from April highs. Worries about the banking industry in Europe could be seen in the Libor rate, with the
three-month U.S. dollar London interbank offered rate hitting its highest level since July of last year.

The DJIA sank to 9,774.48, its lowest reading this year, and for much of the day threatened to set a new closing low for the year. The average is down more than
10 percent in just the past month. I was stunned the way markets recovered drastically. Volatility remains at historic highs but seems to be tickering just slightly.
Today a Black Spinning Top was formed. This represents complete indecision between the bulls and the bears. If a Black Spinning Top is observed after a long
decline or a long black candlestick, this implies weakness among the bears and it is a warning about a potential change or interruption in trend. Like most other
single candlestick patterns, the Black Spinning Top has low reliability. It reflects only one day’s trading and can be interpreted both as a continuation and a
reversal pattern. This pattern must be used with other candlesticks for a better and healthier confirmation of a trend.

It’s too early to tell if we’re in a reversal trend. We’ll have an up day tomorrow, but I still urge investors to tread with caution. There’s still too many unknown
variables in the markets.

Tags: correction, europe's austerity measures, Greece, italy, massive rally, pigs of europe, portugal, spain, vix, volatility

T his entry was posted on T uesday, May 25th, 2010 at 6:22 pm and is filed under Stock Market News. You can follow any responses to this entry through the RSS 2.0 feed. Both
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