Bears continue to feast on the hopelessness of traders with major market indices down sharply Thursday. The Dow ($INDU) lost 678.91 points, or 7.33 percent, to close the session at 8,579.19. The S&P 500 ($SPX) declined 75.02 points, or 7.62 percent, to 909.92. The Nasdaq ($COMPQ) was down 95.21 points, or 5.47 percent, to 1,740.33. Volume was strong with 2.01 billion shares traded on the NYSE and 2.99 billion shares turned over on the Naz. Market breadth was negative by a 2-to-29 and 5-to-25 margin on the Big Board and Naz respectively.

The session started positively, but selling ensued as the session progressed, with losses accelerating the last hour of the session. One possible reason for large losses was the end of the short-selling ban on financial stocks. Shares of Citigroup (C) fell 10.21 percent with Wells Fargo (WFC) off 14.58 percent and Wachovia (WB) losing 28.85 percent. Overall, the KBW Bank Index ($KBW) fell 11.89 percent to 48.75, though the index did remain above its 52-week low.

American International Group (AIG) saw a loss of 25.08 percent to $2.39 after the company announced it would get nearly $38 billion on top of the $85 billion it received last month. This news didn’t sit well with traders who feel it shows the problems in the sector that were denied for so long. This leaves traders feeling that the worst might not be over for the sector, which is obvious by the continued selling being seen in stocks.

Tech stocks held up a bit better than the broader market with IBM (IBM) some positive news for the sector. Big Blue announced better than expected earnings and confirmed its full year outlook. After seeing gains early in the session, IBM ultimately succumbed to selling, losing 1.71 percent to $89.00. Apple (AAPL) and Microsoft (MSFT) also both fell, but at a much slower pace than the broader market.

Ironically, huge losses Thursday came on the one year anniversary of the SPX and Dow highs at 1,576 and 14,164. Today’s losses put these two indices at losses of more than 40 percent from these highs with most these losses coming the past few weeks. The question is when capitulation will occur considering the fear indices are moving higher and higher.  The CBOE Market Volatility Index ($VIX) rose 11.11 percent to a price of 63.92, a new all-time high. Yes, this does provide one check on the side of capitulation, but it’s hard to say this point has been reached. However, another sign of a bottom is when even non-financial magazines and news shows are talking about the demise of the stock market and the economy and this is starting to occur.

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