There are two words that describe today's action in equities: "UG" and "LY". As mentioned over the weekend, we wanted to see immediate strength in equities to support our hope of forming the mid-term rally at this point. Considering stocks suffered another last-hour slump to close the session pretty much on the lows, one would have to place fairly low probability on the existence of our fabled rally. To add insult to injury, banking shares failed the zone of support highlighted in the last post:
It was a quaint thought, that mid-term rally, but it now seems gravity will have its way. After the failures of the constructive pattern out of late October and last weeks high-volume reversal, it would be hard to imagine the SPX escaping the magnetic pull of the previous bear market low.
It was also quite a coincidence that I mentioned Citigroup's troubles in the weekend post since the big news this morning was their plan to cut an additional 50,000 jobs. Fifty thousand. That's a lot of people. I feel for them, but honestly, I don't know what took my former employer so long to wield the axe. I hope some of my buddies on the trading desk are faring well. I will have to get in touch with them when the time is appropriate. In any case, news of massive cost-cutting would usually send a stock higher in your run-of-the-mill recession. Given that C shares were off almost 7%, we have more evidence that this is no run-of-the-mill recession.
There is a caveat to the gloom and doom scenario but it is a weak one: simply that the market has been acting so nuts of late that it would only be half surprising to see it reverse higher just at this moment when another 10% of downside seems to be baked in. If a miracle rally were to happen, however, it would need the dollar's blessing.
We enter Tuesday set up for more nastiness. The bears will be gunning for new lows, and I don't see anything standing in their way.