Monday, August 8, 2011 5:10 PM – Another Bad Day for Stocks

How bad was it? The S&P 500 index was -6.66%, the DJIA lost 634 points (5.55%) while the Nasdaq lost -6.9% and the small stock index -8.71%. Gold gained 3.7% to $1,710.

When selling gets to this pace, the bottom almost always occurs within a few days. We are down to the level predicted by the infamous head and shoulder chart pattern and also at a major support level. If that doesn’t hold the next support level is 1040 on the S&P 500 index, about 8% lower from here.

Sentiment is horrible and the fear index closed at 48, its second highest spike in 30 years, exceeded only by 2008. Much of the selling today was apparently forced selling by big hedge funds and those investors receiving margin calls.

A good rally should start just about anytime. A good bet would be Tuesday or Wednesday, especially given that Fed Chairman Bernanke’s is scheduled to speak tomorrow at 2:15.

Some of our more aggressive funds, the mid-cap and small-cap funds hit stop loss levels today and were sold. Some others had been sold last week. Most individual stock positions were sold today. Those funds in 401k managed accounts will be sold tomorrow unless a rally breaks out.

We will watch for a rally to start which should gain 10% – 15% from the bottom.

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