Market Wrap

Today may be called historic by many standards, the loss in the Dow-30 was the 6th largest 1-day drop in history. The Downgrade of the U.S. Aaa credit rating is a historic first. The Senate launching a probe in to the actions of a rating agency is probably a first, in the US anyway, Italy started down that road with raid on S&P's offices last week. Gold hit a new all time high.

As for an oversold/capitulation type environment, I don't think I have seen one this pessimistic EVER!

Here are the internals:

Total Volume made today the most active day in over a year.

The most common Price/Volume Relationship was Close Down/Volume Down except for the Dow and the NYSE Composite, which were both Close Down and Volume Up. Remember, this s not the relationship for the average, but the dominant relationship for component stocks in each index.

The S&P 500 closed with all 500 stocks down, not 1 gainer! The same was true of the Dow-30 and the NASDAQ 100! I don't think I've ever seen that. The Russell 2000 had 44 gainers. Of the 500 S&P stocks 426 fell 5% or more!

Even though US debt was downgraded, Treasuries rallied in a flight to safety

Financials took the biggest hit, XLF lost 9.53% with BAC -18.36% leading the way on news of a pending AIG lawsuit, C wasn't far behind at 15.79%-so much for John Paulson's portfolio.

Even though GLD would seem to be the trade of choice, redemptions in large hedge funds that need to produce liquidity are likely to sell their GLD holdings to meet redemptions. Today Morgan Stanley's ClientServ was knocked offline... hmmm.

Tomorrow the Fed meets and it is not whacky to think the Fed may intervene with some emergency action, this was one of my scenarios posted Friday night.

Remember, the thought has ben the market would need to see a huge decline before the Fed could justify stepping in and interestingly, The Fed met with Wall Street's biggest investment firms on Friday, July 29th, the sell-off started in earnest the following Monday. I would like to have been a fly on the wall during that meeting.

So we have massive capitulation like trade to the likes I have never seen and the Fed meeting tomorrow, it may just be a recipe for a big surprise and with margin maxed out, if that surprise heads upward, we could see a neck snapping short covering rally, that's one of the reasons I updated our open short stops.