Quick Market Update

Just a quick post to note the lowest close since the bear-market bounce began. Also of note is gap down, close at the day’s low and strong volume. This failure came after a “big up” day in Asia, which did nothing here, which is telling.

Also of note is that Google (see chart, below) has…

…retraced all of it’s $250 (50%) rally from the August 2007 lows, and done so on high and rising volume (on the bright side for longs, it did bounce and close higher amid today’s selling).

As we’ve noted previously (most recently here), if you had to pick one indicator of the market’s health and risk apatite, you need look no further than Google (and the Chinese market). Checking those two indicators is analogous to a doctor checking a patient’s pulse and blood pressure.

If you had to add one more indicator to your doctor’s bag, it would probably be the VIX or some similar implied option volatility indicator, which is akin to taking the market’s temperature. When the fever is at a peak, it can only go down, unless the patient dies, of course.

On the fundamental side, the news was (quoting from IBD) as follows [my comments in red]:

  • Service Sector Signals Recession ISM’s nonmanufacturing survey composite index was 44.6 in Jan., well below the neutral 50 level. The business activity index dived 12.5 points to 41.9, the lowest since Oct. ’01 — in the midst of a recession and just after 9/11. It was a record monthly decline. After last week’s weak jobs and GDP reports, the ISM data raised the risk of a recession to new heights. [See my post from two months ago about the U.S. recession, which is now well underway.]
  • Stocks Sell Off On Poor Service The major averages opened lower on the startlingly weak ISM report and kept getting worse during the session, closing near Tue. lows. The S&P 500 fell 3.2%, the Nasdaq 3.1% and the Dow 2.9%. The NYSE composite lost 3.6%. Volume was higher across the board. Just 5 of 197 industry groups gained ground.
  • Fed’s Lacker Sees Recession Risk Richmond Fed President Jeffrey Lacker sees “the possibility of a mild recession.” [He is the first Fed official to use the “R” word… many more will follow… he is like the first leaf of autumn falling from the tree… winter is coming…  get out your recession jackets.] Most Fed officials have said growth should continue. After the weak ISM services reading, futures traders fully priced in at least a half-point rate cut by the March 20-21 meeting. Merrill Lynch sees a strong chance of a 2nd intermeeting cut. The 10-year Treasury yield fell 7 ticks to 3.57%

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