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Sitting on the Bottom

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The major indices continue to trade near their lows of the day. The Dow has given up close to 300 points and fallen below the pivotal 8300 mark. The SPX has fallen 28 points and the OEX is down 14. The OEX continues to hover just over the 440 level, which has proven pivotal in the past.

We are seeing bearish confirmation with a spike in the oil and gold market. Crude oil futures (CL03K) have jumped $1.37 per barrel, bouncing after the recent sell-off from levels not seem since last fall. Gold futures (GC03J) have jumped 3.5 and are now trading 329.7. Gold remains below both its simple and exponential 200 day moving averages, while oil has bounced back above both levels.

The bond market is also seeing much of the cash that has flowed out of stocks. The 5, 10 and 30-year yields have all traded down to new intraday lows in the past hour and have set a series of lower highs and lower lows throughout the day.

New tensions between the U.S. and Russia regarding Iraq's apparent use of weapons imported from Russia has only increased international concerns and weighed further on the markets.

One of the hardest hit sectors so far today has been travel stocks. Big losers from airlines include Delta (DAL -15%), Continental (CAL -16%) and Southwest (LUV -6%). Hotels are also taking a beating, with Starwood (HOT - $2.90) and Marriott (MAR - $2.88) leading the way. Reservation stocks Expedia (EXPE -$1.92) Sabre (TSG -$1.06) and Hotels.com (ROOM -$3.45) have also reversed course dramatically.

One of the few pockets of strength is defense, with the Defense Index (DFI) up slightly, led higher by Northrop Grumman (NOC +$1.83), Lockheed Martin (LMT +0.98) and Alliant Tech (ATK +0.85).

There is little doubt that we continue to be driven by the progress in Iraq, but traders should remember that we have seen a gain of 1100 Dow points over the past week and a half and any pullback is likely to seem extreme, as well. The Market Volatility Index is reflecting the renewed fears of a quick correction, as it has jumped from its first sub-34% close in weeks to trade back over 35%.

The techs are getting walloped as well, as is evident when looking at the Semiconductor Index (SOX). The SOX has rolled over from its exponential 200-dma of 337, but still sits above the simple 200-dma at 313. The COMP fell back below 1400 and has now lost 44 points on the day. It spent one day above the 200- ema and has converging simple 21, 50 and 200-dmas all between 1330 and 1350, which should bring in some buyers if we get there and thus give the techs some support. It now trades 1377.

Traders looking for the next significant support level to watch can keep their eyes on OEX 440, which has yet to be broken today. We have flat-lined between 440 and 442 for much of the afternoon and the breakout from that consolidation should give us an idea whether we will bounce or continue with the correction.

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