If the financial markets were part of a weather map, Monday's credit-related storminess would be forecast to hang over Wall Street again on Tuesday.
There's not much in the way of fresh data to consider Tuesday morning. But after the bell Monday, Texas Instruments cut its first quarter earnings and revenue outlook on weaker than expected chip demand. Wellpoint also cut its outlook, trimming full year expectations in a move that hit its stock price.
The NFIB small business survey is released at 7:30 a.m., and international trade data is reported at 8:30 a.m.
On Monday, stocks sold off on a batch of credit worries, including talk of liquidity problems at Bear Stearns. Bear stock fell sharply even though it denied the rumors that started circling its stock in the late morning. Fannie Mae and Freddie Mac also plunged on a Barron's article that questioned whether Fannie may need a government bailout.
The Dow fell 1.3 percent to 11,740, while the Nasdaq fell nearly 2 percent to 2,169. The S&P 500 finished at 1,273, down 1.6 percent. Financials were among the worst performers, losing 3 percent after a more than 5 percent decline last week.
Buyers moved into Treasurys as worries continue to swirl around mortgage-backed securities and other parts of the credit markets. The 10-year added 28/32 points, lowering its yield to 3.438 percent. The two-year's yield fell to 1.432 percent, its lowest yield since October 1, 2003.
Traders, meanwhile, are betting the Fed will cut rates by 0.75 points before its April 30 meeting. The Fed meets March 18 to consider rate cuts. CNBC's Rick Santelli says the Fed funds futures show a 100 percent chance of a 0.75 point cut before April 30.
Oil meanwhile bubbled over, closing at $107.90 per barrel, up 2.6 percent. Oil hit an intraday high of $108.21 per barrel. "The one thing that stands out to me is the fact that crude oil can go to $108 and energy stocks are down with the rest of the tape," said one trader. The energy sector was down nearly 2 percent, a signal that perhaps either the market sees crude prices as too rich or energy stocks are about to catch up, he said.
The other big feature in the market though is the swirl of worry and rumors about financial institutions, particularly ahead of earnings reports next week from some Wall Street firms, including Bear Stearns. "The credit crescendo is building," the trader said. "Whether we'll crescendo into a bottom has yet to be seen."
We've heard a lot of talk since Friday about the market setting up to retest lows. "Thursday kind of ignited the move that made prudent money managers have to take positions off, presuming the level might not hold," said Scott Redler, chief strategic officer with T3 Capital.
Redler said the market could test 11,600 on the Dow and 1255 on the S&P 500 in the next couple of days. "I think today you got some capitulation in the financials. That Bear Stearns rumor fueled some fear and volume," he said.
"If we could hold the 11,600 area, and then we get a powerful surge of volume, chances are we could release some of the downside pressure and we could get a little bit of a reflex rally," he said, noting he would expect the same scenario with the S&P. If that doesn't happen however, and the market continues to head downward, it is unclear what would happen as the next technical level on the Dow is not until 10,600.
"I do think within the next two days we're going to get a very strong reflex rally from that 11,600 or 11,400 area," he said. If that happens, the market would have built in a double bottom.
Another meter we've been watching is the activity by shorts. John Tabacco, ceo of Locatestock.com, says there's been a pickup in volume lately at his service, used by shorts to locate stocks. For instance, the 20-day average volume was 316.4 million through Feb. 14, but it has now risen to a point where it was 367.5 million for the period ending last Friday.
Not only is there more activity, but the variety of stocks being shorted has increased. "The shorts seem to me to be a leading indicator of where the market sentiment is," said Tabacco. "I think they think the subprime issue is filtering down to every part of the market."
"The shorts still see downside. They're not letting up at all," he said.
Wall Street's Sheriff
There's not much more to say about N.Y. Gov. Eliot Spitzer that would adequately sum up the bizarre irony of this story. The former New York attorney general's reputation appears tarnished beyond repair. Needless to say, his alleged association with a prostitution ring shocked Wall Street, where Spitzer wrangled with more than a few executives.
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