The market reacted to a bad economic report in Japan overnight, a -8.5% market drop in Brazil and the ever tightening political noose on the president with a huge profit taking drop.
As it becomes increasingly evident that Clinton will be impeached the fund managers are taking the path of least resistance by closing out winning positions and getting ready for the coming storm.
The circle is closing for Clinton as four moderate Republicans which had been undecided now say they will vote for impeachment after Clinton again claimed he would never admit he lied. The few remaining votes are slowly falling into line and the vote on Thursday is not expected to fail.
For the fifth straight session the Dow dropped again for a loss of -126 points. This now puts the Dow loss at -7.1% from the recent November highs. This is the first time we have been below 8700 since October.
The Nasdaq, which has been on a +45% streak until lately, suffered the most. With a drop of -62 points, -300 Dow equivalent points, the Nasdaq showed the most impact of the profit taking. Blue chip tech stocks got hammered. MSFT -6.06, CMGI -6.44, DELL -2.44, YHOO -4.44, CSCO -3.13, INTC -4.88. IBM, while not a Nasdaq stock, also lost -5.13. The carnage was across the entire sector.
The only bright spot for the day was the attempted bounce at the close. We did regain some lost ground but only as last minute bargain hunters moved in to shop.
Compounding the political situation was the continued earnings warnings. RJR-Nabisco announced 3900 job cuts and Citigroup said it would take a $1 billion charge for restructuring as it implemented some strong cost cutting measures. Royal Dutch Petroleum announced that earnings would fall -$4.5 billion due to restructuring and sales of non core operations.
Even with the continued warnings there is still optimism about the coming first quarter. Analysts are actually raising estimates on some tech companies and retailers.
The market still wants to go up but caution is the watch word. Like I said Sunday, if we can just get to Christmas then the vote will be history and the year end buying can begin.
We do not recommend starting any new call positions at this time. Not that we expect the tech to drop any further but as with any major move the bargain hunters will continue to place their bets as each new level is reached.
S&P futures are up +1.00 at 8:PM and we will probably get a relief bounce at the open. It may not hold as news events prevail.
Patience at this point will be well rewarded in a couple weeks.