Deluge of Bad News Triggers Ugly Session

After five days of downward action that had pushed the major indices to short-term lateral support levels and left the market somewhat oversold and despite hopes for some reflexive action to the upside, buyers were on the sidelines once again on Wednesday in one of the worst trading session we’ve seen in quite a while. Following the previous day’s mixed session, indications were for a much lower start to the day as investors digested yet another deluge of bad news and terrible action in overseas markets. News that C will be getting rid of its brokerage unit, a December retail sales report that came in well below consensus estimates, earnings warning from the likes of TIF (NYSE: TIF), UA (NYSE: UA) and DB (NYSE: DB), big losses in overseas banks, an ugly downgrade for BAC, bankruptcies for Goody’s and Nortel, an expected loss of €4.8 billion from DB, and a warning from Ireland’s Prime Minister that his county might need help from the IMF all weighed on sentiment as we headed towards the opening bell.

As such, the market opened the day by gapping sharply lower, moving straight down for the first 20 minutes of the day. The action was ugly from the get-go, and with just about every area of the market in the red, there just wasn’t anywhere to turn. However, the selling pressures stalled momentarily as the S&P 500 hit the 850 area, which, before today, marked the most recent intraday low since last month’s job report. Unfortunately, those levels only acted as a brief resting point, as the downside pressure promptly resumed.

The next half-hour saw another precipitous drop, but the action finally stabilized a little over an hour into the trading session, just as the indices were hitting various points of intraday lows from the previous month. For the next several hours, the market was able to drift a bit off those levels, and as the day wore on, it became apparent that many traders were hoping that the early action had exhausted sellers and left the market primed for a bounce as the day wore on. Indeed, many traders were hoping that one might develop, but as is often the case when a trade is widely anticipated, it has difficulty coming to fruition. In that was in fact the case, then the fact that any small move to the upside, including a hopeful move to buy after the Fed’s Beige Book was released, sputtered out shouldn’t be all that surprising.

By the end of the day, the indices were able to finish just off the lows of the session, with average losses of 3.32% on breadth that wound up just south of 11:2 to the negative. Without a doubt, things are looking tenuous here. The major indices are hanging by a technical thread to lateral support, we’ve taken some short-term technical damage, and we haven’t heard a peep from buyers in a while now. We’ll see how it goes. Perhaps some big earnings reports as we head into the end of the week will be met with a buy the bad news response, but if there’s one thing this market has taught us over the past year, it’s that we simply can’t expect any action to the upside to last. At some point, it will, but we’ll maintain that assumption until we’re proven wrong.

Let’s go to the charts.

The Nasdaq took a hit during today's trade on an increase in volume. Technically, short -term support levels were breached today, and the price action is very poor.

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The S&P 500 (INDEX: $SPX) moved lower during today's trade on an up-tick in volume. Technically, the 850 support level was broken, and the price action doesn’t bode well for the near-term.

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The Russell 2000 (INDEX: $RUT) finished the session lower and remains below its 50dma. Support levels were broken today, and the price action remains bearish for the index.

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