Monday, June 22, 2009

Potential Triple Whammy for Stock Market

Heads-up for Tuesday's stock market.

The U.S. stock market has been under severe pressure all day; it gapped down at the open and has kept down the entire day, with 30 minutes remaining for trading. The supposed reason for the downward pressure is the World Bank's assessment that the global economy will shrink by greater percentage (-2.9%) than it previously estimated (March prediction was -1.7%).

World Bank just got $4 billion from the U.S. government for its fight against global poverty, and looks eager to lend to struggling developing economies. That $4 billion was part of the Supplemental Appropriation Act of 2009 that passed last week.

So bad news is bad again? Or is this more like a strike by large market makers (who happen to be Treasury's Primary Dealers and COMEX (gold and silver) dealers), protesting against the gigantic financial industry overhaul proposed by the administration? Or is it total opposite, and they are doing the service for smooth Treasury auctions by tanking the stock market and precious metal market?

Wait, I have the third explanation... Treasury Primary Dealers (who happen to be market makers and COMEX dealers) had to come with money to buy Treasuries today, so they sold their stock holdings and their commodity holdings to raise money.

The trading volume is less than the elevated Friday level (due to quad witching).

It looks like a minor battle is going on to keep Dow Jones Industrial Average above the 50-Day Moving Average, which sits at 8,378. Dow is currently at 8,374, with 25 minutes left.

(1:00 PM EST) No. It was a selloff at the end. Dow ended down 200 points (-2.3%) at 8338, well below 50-DMA. S&P 500 went down 28 points to 893, the first below-900 close since May 27. Nasdaq fared worst, down 61 points to 1,766, but it remains the only major index that still sits above its 50-DMA and 200-DMA.


Mohit Jain said...

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