U.S. Stock Market - Biggest Down Day of the New Year !

The S&P 500 Index was down 1.83% today, which was fairly representative of the entire U.S. equity market. The financial press is buzzing now about potential stalemate with respect to the upcoming “sequester” spending cuts issue and the likely failure of Congress to compromise with the Obama Administration on ways to ameliorate any potential negative consequences here.

And Former Italian Prime Minister Silvio Berlusconi's strong showing in the latest Italian general elections supposedly has many pundits now thinking that much-needed financial reforms in Italy may now be on hold.

While Italy’s problems and the potential negative consequences of the sequester spending cuts are clearly important, today’s thrashing of U.S. stocks was probably already set in stone before traders and investors even walked in the doors to their offices this morning. The tide had already turned and a major stock market correction is now underway. The peaks in most major indices were posted last week, but the top in the Dow Jones Industrial Average was actually posted intra-day today. Early this morning, the DJIA traded as high as 14,082 (+82) before reversing to the downside. This closely watch barometer of the U.S. market fell 297 points from its intra-day high and finished today at its lowest level, -216 points (-1.55%) on the day.

Here are today’s closing marks, with changes from last Friday’s close:

                                                                                    Monday’s Changes                  

Dow Jones Industrial Average                      13,784.17        - 216.40             -1.55%           

S&P 500 Index                                                1,487.85          - 27.57             -1.85%           

NASDAQ Composite Index                             3,116.25          - 45.57             -1.44%           

Russell 2000 Index                                             895.84          - 20.32             -2.22%                       

For your review, the daily bar chart for the S&P 500 Index is attached below, with all buy & sell signals from my computer-based trading system reflected on this key chart (i.e. yellow dots represent buy signals and red dots represent sell signals).

Gold, Silver, and related precious metals mining stocks were standout winners today. And so were longer-term Treasury notes and bonds as “flight to quality” forces buoyed both of these asset classes. Despite recent proclamations to the contrary by legendary investors like George Soros and Jimmy Rogers, T-bonds aren’t ready to die just yet. And sentiment among traders and investors in the Gold and Silver markets was so bearish by late last week that today’s “oversold” bounce was inevitable in this beaten down asset class.

Bottom Line: A major correction is now underway in U.S. stock prices. With the exception of Gold/Silver mining shares, I don’t see any place to hide for equity investors. The Federal Reserve’s “trial balloon” from last week, where possible exit strategies from its current accommodative monetary policies were discussed, was clearly the catalyst for this latest downturn in U.S. stock prices, but the negative news for shareholders is just beginning. The first significant warning sign was probably the massive selling that was recorded by corporate insiders in January, and now we can probably expect disappointing earnings relative to analyst forecasts ahead. Ongoing dysfunction in Washington will top the list of negative factors for stocks over the next month or two at least. Only the Federal Reserve can stop the current stock market slide, but Chairman Bernanke and Company probably won’t ride to the rescue for many months or until most major market averages really get busted on the downside (-20% or so!).



S&P 500 Index Daily Bar Chart with Computer-based Buy & Sell Signals