Friday, October 3, 2008


October 3, 2008

Major market indices fall to new lows on a very volatile Friday trading session. The Dow ($INDU) lost 157.47 points, or 1.50 percent, to close the session at 10,325.38. The S&P 500 ($SPX) declined 15.05, points, or 1.35 percent, to 1,099.23. The Nasdaq ($COMPQ) was down 29.33 points, or 1.48 percent, to 1,947.39. Volume came in at 1.38 billion shares on the NYSE and at 2.53 billion shares on the Naz. Market breadth was negative by a 11-to-19 and 8-to-21 margin on the Big Board and Naz respectively.

Stocks got off to a positive start Friday with the Dow up at one point 313 points. Interestingly, gains ensued despite a worse than expected nonfarm payrolls release. For September, payrolls were down by 159,000, which was much worse than expectations for a reading near 100,000. Despite this negative news, stocks seemed to find strength on hopes the House would pass the revised bailout plan.

Another positive early on was news that Wells Fargo (WFC) had offered to buy Wachovia (WB) for about $15 billion in stock. The deal would give WB shareholders 0.1991 shares of WFC for each share of WB they own. This valued WB shares at $7 based on Thursday’s close for WFC. However, Citigroup (C), which had previously committed to buying the banking assets of WB with the help of the Fed, said it would fight the deal because the company felt they had a binding agreement. The fact is that traders liked the fact that WFC was willing to step in and buy WB shares without any government assistance and at a solid premium to the stocks’ closing price of $3.91. The stock closed Friday’s session at $6.80 a share, a gain of 73.91 percent.

In the afternoon, traders got the news that the House of Representatives had passed the bailout legislation. In a definite “sell the news” mentality, strength gave way to weakness as traders bailed out of positions heading into the weekend. The feeling is that the bailout plan won’t solve the problems in the credit markets, but that without it, a complete freezing of credit could have occurred. Now traders are concerned that a lot of damage has already been done and that the U.S. economy is already in a recession.

The scary thing for the bulls is the fact today’s declines took the major market indices to new lows with Monday’s lows not holding. For the week, the major market indices all lost at least 7 percent with the Naz down 10.81 percent the past five trading sessions.



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