The stock market crashed on Monday, Sept. 29, following the failure of the financial rescue package. What are these people thinking? The S&P 500 plummeted 8.49%, the largest one-day decline since the crash on October 19, 1987, when the market fell 20.5%.
What we would like to see on Tuesday is a major decline at the outset, followed by a major reversal to the upside. To us, that might go a long way to creating at least another short-term bottom.
There were some phenomenal sentiment and internal readings today, as we saw another trading day of clear panic. The VIX, or volatility index, on the S&P 500 hit 48.4% on an intraday basis, the highest since July, 2002.
Funds came rushing out of stocks and corporate bonds and into Treasuries on a massive flight to safety. The 3-month Treasury bill, at one point during the day, fell near 0%. The VIX/2-year Treasury yield, a type of panic indicator, rose to levels not seen in the last two decades.
The NYSE decliners/advancers ratio was an extraordinary 21:1, the highest since the crash in 1987. NYSE declining volume/advancing volume was an astonishing 30:1, the highest since the mini-meltdown in October 1997, and not too far from the levels seen during the 1987 crash.
For the S&P 500, chart support from the mid-September lows has given way, and the index is now in a layer of chart congestion that lies between 1063 and 1120. This is from the sideways action from back in 2004. A 61.8% retracement of the bull market targets the 1078 level, right within this zone of chart support.
We continue to believe that the market is close in time to a major market bottom, but we are just unsure at what level that may be.