Difficult times continue for the economy and stocks with the major market indices hitting new 6 ½ year lows. The Dow ($INDU) fell 444.99 points Thursday, or 5.56 percent, to close the session at 7,552.29. The S&P 500 ($SPX) lost 54.14 points, or 6.71 percent, to 752.44. The Nasdaq ($COMPQ) gave up 70.30 points, or 5.07 percent, to 1,316.12. Volume was extremely heave on the session with 2.23 billion shares traded on the NYSE and 3.18 billion shares changing hands on the Naz. Market breadth was negative by a 2-to-28 and 4-to-25 margin on the Big Board and Naz respectively.

After a tough day of trading on Wednesday on concerns about TARP and the auto sector, stocks continued to plummet Thursday following the jobless claims data. Claims for the week ending Nov. 15 rose by nearly 30,000 to a level of 542,000. This was well above expectations for a reading closer to 505,000 and pushed the four-week moving average to 506,500. This is the highest level for this moving average since 1983. This data shows that the unemployment rate is likely to continue to rise, which leaves traders in a sour mood.

Earlier in the session, there were some gains when reports surfaced that a deal had been reached with the auto sector. However, news surfaced that Democrats had rejected the deal, especially when Treasury Secretary Paulson stated that the government can’t be too hasty. This news led to selling, which culminated in a spike in the fear indices and a sharp decline in stock prices.

The CBOE Market Volatility Index ($VIX) jumped back above 80, but did manage to avoid its highs from Oct. 24 that took the index just below 90. The Nasdaq Volatility Index ($VXN) hit a high of 81.24 intraday, ultimately closing at 80.64, but below its high at 86.52. The SPX fell to a 11 year low, moving through its 2002 bear-market low. One fact that shows just how serious this bear market has become is that the SPX is down 52 percent from its record high in Oct. 2007. This is second largest bear market on record, trailing only the 83 percent drop seen between 1930 and 1932.

Financial stocks continued to get pummeled with Citigroup (C) down sharply for the second straight session. On Wednesday, Citi shares fell more than 20 percent on concerns the company will not be able to generate the cash it needs to continue operations. Earlier in the week, the company announced it would cut more than 50,000 jobs. Even news that Prince Alwaleed raised his ownership in the company by 5 percent couldn’t keep the stock from falling 26.41 percent to a price of $4.71.

Volumes and volatility have intensified this week due to the option expiration on Friday. Tomorrow’s economic calendar is light and this means the focus will remain on TARP and the auto sector. Eventually a bottom will be found, but traders are still unsure of what the future holds and are not ready to place large bets yet.

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