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Bears regain control of stocks Monday, sending the major market indices down sharply. The Dow ($INDU) fell 241.81 points to close the session at 11,386.25. The S&P 500 ($SPX) lost 25.36 points to 1,266.84. The Nasdaq ($COMPQ) declined 49.12 points to 2,365.59. Volume remained very light on the session with 865.1 million shares traded on the NYSE and 1.46 billion shares exchanged on the Naz. Market breadth was negative by a 7-to-24 and 6-to-22 margin on the Big Board and Naz respectively.

Financial stocks continued their demise led by a decline in shares of American International Group (AIG). Credit Suisse lowered its profit estimates and target price on the insurance giant. AIG shares fell 5.49 percent on the session to close at a 13-year low of $18.78. Credit Suisse lowered its third-quarter earnings estimate to a loss of 86-cents a share from a profit of 13-cents.

Ironically, Freddie Mac (FRE) and Fannie Mae (FNM) were able to gain ground on the session, up 17.1 percent and 3.8 percent respectively. The fact that FRE got solid demand for a $2 billion debt auction showed that the firm is still able to raise capital. These two stocks have suffered wild swings on rumors the government would bail out the mortgage lenders, leaving shareholders out to dry.

Oil was a major focus last week with the commodity seeing large swings to end the week. Crude rose 52-cents a barrel Monday to a price of $115.11. Concerns about possible weather disruptions led to mild gains Monday. However, a easing of tensions in Russia and an expected slowdown in demand pushed the commodity lower by more than five percent last Friday.

In economic news, existing home sales came out better than expected in July, but falling home prices and elevated inventory levels remain a serious concern. Existing home sales rose 3.1 percent in July to an annualized rate of 5.0 million units, exceeding expectations for a reading of 4.94 million. Supply remained high at 11.2 months, up a tenth, which led to a 1.3 percent decline in the median price to $212,400. In the past year, home prices are down 7.1 percent. Falling prices, along with increased foreclosures is a serious risk to the economy.

Tuesday’s session will be highlighted by new home sales and the FOMC minutes. Of course, oil prices and financials will remain in focus and the bulls will be hoping for some sort of bounce back from a disappointing, but low volume session.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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