November 19, 2008, 2:56 pm
Stocks Back In ‘Test Support’ Mode; VIX Shoots Up
FINANCIALS, AUTO MAKERS, COMMODITIES PACE FALLOFF
U.S. stocks indexes have collapsed back in striking distances of the five-year lows reached last month and tested last week, as the languid battle between a buyers’ strike and the occasional short-selling bulge plays out once again in Wednesday’s trading. Much as it did Tuesday. And several other recent sessions. Judged by the clock on the scoreboard - not to mention the sharp intraday moves on the market indexes - Wednesday’s offered another pitched battle. The VIX Index, the popular measure of volatility, has moved back in the mid-70s range, an indication of high volatility. In reality, though, as tepid volume shows, there’s a lot less than meets the eye in Wednesday’s trading, suggesting that the 340-point swing from the lows to the highs on the Dow industrial average haven’t really represented a heavyweight championship between two hard punchers, one a bull, the other a bear. In fact, it’s more like two toddlers on a seesaw - one representing buyers who see value in stocks but refuse to chase prices higher, the other the short-sellers who occasionally scramble to cover some otherwise successful bets. It’s less spectacle than the uninitiated might imagine.
Nevertheless, those market averages have drifted down toward the levels that have represented support for the market the last two weeks. The Dow industrial average broke the Oct. 27 low of 8175 intraday. The S&P 500 has flirted with last week’s nadir at 818, much as it did Tuesday. However, here Wednesday, the S&P won’t get the mechanically driven shot in the arm that it might have gotten Tuesday. That’s when shares of Anheuser-Busch came out of the index upon completion of the acquisition by Belgian-Brazilian brewer InBev. Bud got replaced with Stericycle (SRCL), whose $5 billion mark capitalization would have been a fraction of Bud’s $70 billion total, leaving index fund managers to distribute the rest of the cash they received for their beer-maker holdings across the components of the index. Regardless of the mechanics involved, late-session volatility - of a more-genuine kind - has been characteristic of this market, so it couldn’t be ruled out Wednesday.
Once again, financial stocks have been the market’s predominent whipping posts in the session. Shares of Goldman Sachs (GS) continued their precipitous plunge, falling another 7% in Wednesday’s trading. The stock has dropped below $58 a share, the kind of pricetag that Goldman hasn’t commanded since its 1999 IPO. Bank of America (BAC), Citigroup (C) and JPMorgan (JPM) all traded sharply lower in the session, with each recording new lows for this year, and several years back. Citi hadn’t traded below $8 a share in 13 years until this week.
Even financial companies with reasonably encouraging fundamental stories to tell have absorbed beatings again Wednesday. E*Trade Financial (ETFC) reported Wednesday that new account openings reached their highest levels in five years in October. Didn’t matter. Shares fell 18% to their lowest levels ever, trading just over $1. Worries about consumer credit problems, a lack of earnings on the part of those financials - these are the issues investors think about when they’re considering stepping into financials.
Meanwhile, auto makers have traded as if bankruptcy - if not outright failure - is becoming increasingly likely. Ford Motor (F) lost more than 20% off its already-puny valuation. The market capitalization of General Motors (GM) dropped below $1.6 billion.
Commodity-related stocks plunged once again, as worries about global economic conditions picked back up. Alcoa (AA) fell 10% and slid to a new low after JPMorgan cut its estimate on the aluminum maker’s 2009 profits to 24 cents from its previous 80 cents a share; the Street has been forecasting 98 cents a share for the year. Declining prices have hit margins and slumping demand has forced basic materials companies to cut production aggressively. But we’ve known all this. Coal stocks have fallen sharply, as well, with Massey Energy (MEE), representative of the group, down 13% to a low.
In short, few things are working - except, of course, betting on declines of groups that are considered at risk. The ProShares UltraShort Financials (SKF) jumped 13% Wednesday, and took out the old high, reached back in July when everybody thought the financial services sector was going out of business. |
