Last week’s gains disappear on a very bearish start to the month. The Dow ($INDU) lost 679.95 points, or 7.70 percent, to close at 8,149.09. The S&P 500 ($SPX) declined 80.03 points, or 8.93 percent, to finish the session at 816.21. The Nasdaq ($COMPQ) gave up 137.50 points, or 8.95 percent, to 1,398.07. Volume was modearte on the session with 1.63 billion shares traded on the NYSE and 1.94 billion shares exchanging hands on the Naz. Market breadth was negative by a 2-to-27 and 5-to-25 margin on the Big Board and Naz respectively.

After the largest five session gain in 75 years, some profit taking was expected, but not at the rate seen Monday. Disappointing economic news and the official announcement that we are in a recession combined to convince traders to sell. As has been the case the past several months, volatility continues to be extreme, leaving traders unsure of what to expect from day to day and hour to hour. However, Monday’s decline was about a 50 percent retracement of the recent gains and this level could provide some support.

Economic continued to be a major concern with construction spending and the ISM Mfg. Survey both coming in worse than expected. In October, construction spending fell 1.2 percent; 3-tenths lower than anticipated. As has been the case for some time now, private single family construction was the weakest part of the report. The ISM Index was also very weak, falling to a level of 36.2 in December from 38.9 in October. This is the lowest reading for the index since the recession of 1980. The employment component didn’t fall far, down just 4-tenths to 34.2, but this still is a level that points to weakness in the November employment data.

Treasury Secretary Paulson stated today that the government is working on more programs to help stimulate lending. The National Bureau of Economic Research officially declared that the U.S. economy is in a recession and has been since December 2007. This could be viewed two ways; one being that the recession could end soon with the other that this shows just how severe the current recession has become. The recessions in the mid-1970s and early 1980s lasted about 16-months, but economists don’t expect this recession to end any earlier than the middle of next year.

Shares of General Motors (GM) fell 12.4 percent ahead of the automakers presentation to Congress on Tuesday. The company is looking to secure at least $12 billion in funding to help keep the company viable. Ford (F) shares also fell despite reports surfacing that the company is looking to sell its Volvo brand.

Retail stocks took a hit Monday despite the fact retail sales over the busy weekend were stronger than expected. Retailers rallied sharply heading into Black Friday and economists do not feel spending will remain strong as Christmas approaches. Analysts also expect consumers to look for deep discounts and this could hurt profits for the sector.

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