Market Grinds to a Halt, Metaphorically Speaking

(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)

Volume has been lighter so far this week as the market awaits the outcome of talks regarding the proposed passage of an economic bailout plan by the U.S. government to purchase "toxic" debt and stave off a more severe economic downturn. Components of the plan so far have been met with a great deal of contention and the result of the closed-door negotiations is uncertain, although Bernanke seems set against another interest rate cut and has rejected allegations that the Treasury would "simply print money" to pay for the proposal. He did, however, express that this is the greatest threat the economy has faced since World War II.

Early in the day on Wednesday Warren Buffett went on air in support of Treasury Secretary Paulson's plan. The presidential candidates are also entering the debate with McCain announcing that he is temporarily canceling campaign events to return to Washington to help address the issues, while Obama is urging campaign events, including Friday's debate, to continue as planned. The whole thing reminds me of chess-like strategy game, but with more than two players attempting to move the pieces around and the sides uncertain other than the fact that they each want to come out ahead. All the while, the clock is ticking...

Nasdaq Composite ($COMPX)


As traders moved to the sidelines following the strong move lower off Friday's highs, the indices fell into a session of choppy action. As I mentioned yesterday, trends tend to break their 15 minute 20 period simple moving average intraday once they've held it for about 2.5-3 days. This took place on Tuesday afternoon and the trend continued to show correction off the support zone into Wednesday as well. The S&P 500 and Dow Jones Industrial Average both broke to slightly lower lows early on the morning on a 15 minute time frame, although the Nasdaq managed to hold the prior day's lows.

Dow Jones Industrial Average ($DJI)


The homes sales data was rather dismal, but then again, many had anticipated it to be so and after a substantial move lower over the prior several days it had little impact on the session. The National Association or Realtors reported that resales of single-family homes and condos fell 2.2% in August. This brought the seasonal annual rate to approximately 4.91 million, less than the 4.93 anticipated. After pulling briefly lower, the indices held the 10:15 ET correction period and fell into more of a sideways trading range throughout the remainder of the morning and into the early afternoon. Volume continued to decline and the range narrowed into a symmetrical triangle. This range broke higher with the 13:00 ET correction period, but the move lasted for only a short time before the pace again turned lower. The zone of the earlier lows held and the indices managed to bounce into the close.

S&P 500 ($SPX)


The market ended the session with very little change. The Dow Jones Industrial Average ($DJI) fell 29 points to close at 10,825. The losses were led by Citigroup (C), which fell 5.1%. The S&P 500 ($SPX) fell 2 points to close at 1,186, while the Nasdaq Composite ($COMPX) gained 2 points to end at 2,156. Technology shares continued to hold up better than the rest of the market overall. Google (GOOG), Apple (AAPL), and Microsoft (MSFT) were among the gainers on Wednesday, although the gains were modest. American International Group (AIG) and Washington Mutual (WM) both again suffered substantial losses. AIG closed lower by 33% after agreeing to take the $85 billion assistance from the Fed. WM lost 29.4% when Standard & Poor's cut its counterparty credit ratings.

Following the initial descent off last week's highs, I had suspected that after a few days of choppy action that we would see lower lows again before the market managed to show a greater correction off lows on a weekly time frame. The slightly rounded lows made by the descent out of the 10:00 ET existing homes sales data, however, does open the window for a bounce on Thursday. If it fails to materialize, however, and the lows from Wednesday give way, then another sharp round of selling will likely follow that would lead to a new low on the month.