Dow closes below 10,000, but stocks do come off their intraday lows. The Dow ($INDU) lost 369.88 points, or 3.58 percent, to close the session at 9,955.50. The S&P 500 ($SPX) declined 42.34 points, or 3.85 percent, to 1,056.89. The Nasdaq ($COMPQ) was down 84.43 points, or 4.34 percent, to 1,862.96. Volume was very heavy with 1.98 billion shares traded on the NYSE and at 3.49 billion shares on the Naz. Market breadth was negative by a 2-to-29 and 4-to-24 margin on the Big Board and Naz respectively.

Traders became even more fearful of the possibility of a depression, leading the major market indices lower. At one point, the Dow was off more than 800 points, but did cut these losses in half by the close. The week got off to a rough start on news of problems with banks in Europe and the fact that foreign indices took a major hit. Talk of coordinated moves across the globe helped stocks recover with hopes that rate cuts across the globe will be implemented.

The fear indices spiked higher on the session, hitting record highs intraday. The CBOE Market Volatility Index ($VIX) hit a high of 57.55 before closing at 52.05, a gain of 15.3 percent. The CBOE Nasdaq Volatility Index ($VXN) closing with a gain of 11.25 percent to 55.36 after hitting a high above 61 intraday. Spikes in the fear indices are usually a sign of capitulation, which means if we do get some good news Tuesday, we could see a solid rally.

In individual stock news, Citigroup (C) filed an injunction against Wells Fargo (WFC) to stop the merger between the company and Wachovia (WB). Citi initially got approval to buy Wachovia’s banking assets, but the deal included funding from the Fed. Initially, a court decision blocked WFC from buying WB, but an appellate court overturned this ruling so WFC is moving forward with the merger. Shares of Citi lost 5.1 percent to $17.41 with WFC off 2.7 percent and WB down 6.9 percent.

Shares of eBay (EBAY) fell 5.54 percent to $17.89 after the online auction firm announced it would cut 10 percent of its workforce, or about 1,000 employees. The company also announced plans to purchase Bill Me Later for just under a billion dollars. EBAY has a 52-week high above $40, so its shares have also taken a beating, but value traders might step in soon given the stock has a forward looking P/E near 10.

Look for the Fed to make a major announcement tonight or on Tuesday that could push stocks higher. When there is uncertainty, it leads to large swings in stock prices with both ups and downs overextended. Of course, technicians would like to see the Dow quickly recover the psychological level of 10,000.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site