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Losses continue to pile up Wednesday with large intraday swings following Fed rate cut. The Dow ($INDU) lost 189.01 points, or 2.00 percent, to close the session at 9,258.10. The S&P 500 ($SPX) declined 11.29 points, or 1.13 percent, to 984.94. The Nasdaq ($COMPQ) was down 14.55 points, or 0.83 percent, to 1,740.33. Volume was very strong with 2.11 billion shares traded on the NYSE and at 3.58 billion shares turned over on the Naz. Market breadth was negative by a 7-to-18 and 8-to-22 margin on the Big Board and Naz respectively.

The big story Wednesday was the announcement by the FOMC that it would cut the Fed funds target rate by 50-basis points to 1.50 percent. This news was accompanied by rate cuts by several central banks across the globe, including the ECB, which also cut by 50-basis points. Some view this event as a last ditch effort by the Fed, while others feel it is a necessary move that has to be accompanied by further moves by the Fed to provided liquidity. In fact, many economists still anticipate more cuts when the FOMC holds its scheduled meeting Oct. 28-29.

Alcoa (AA) kicked off the third quarter earnings season without much fanfare, although the stock fell 11.97 percent. The aluminum maker announced earnings that fell short of expectations and the company stated it would halt major capital projects due to uncertainty in the markets. AA is a component of the Dow, so its new decade low price didn’t help the bulls cause Wednesday.

Retailers were mostly weaker today on the heels of same-store sales data from many retailers. Even Wal-Mart (WMT), which saw growth of 2.4 percent in stores open more than a year, saw its shares fall half a percent to a price of $54.55. JCPenney (JCP) shares fell 5.25 percent to $27.25 after announce that same-store sales fell more than 10 percent. Overall, the Retail HOLDRS (RTH) saw a decline of 0.89 percent to 77.64. This HOLDRS has a 52-week high near 107, showing the weakness seen in the sector.

One bit of positive economic news Wednesday came from pending home sales. This index rose 7.4 percent with lower mortgage rates and rock bottom housing prices drawing in buyers. The problem is that despite lower prices, many consumers just can’t get credit approval.

Ironically, the Dow is hitting multi-year lows just one day ahead of its record high at 14,164 one year ago. This equates to a decline of nearly 35 percent, which means billions of dollars in equity value has been lost and this too has provided pessimism and has helped push the economy into a recession.

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

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