Sanity returns...or doesn't it ?

Finally...after 5 weeks of non stop advances the market headed lower today. Stocks opened markedly weaker and traded down throughout the session, making consecutively lower lows. At the end of the day the Dow closed down 289 points or - 3.89 %. (greatest market decline since March 5th)

Today's sell of was desperately needed. The market seemed to have gone a bit to far to fast and some form of correction was overdue. The real question is whether the current decline will stop at levels which prevent the current decline to turn into another bear market leg.

As such the 7750 area as well as the 7500 area should provide at least some support on the way down. In a perfect world we slow our decline at 7750 and work our way down to 7500 and form a base there. It is to early to tell how it will play out but at least for the time being we should see some more losses.

However, if the market slices through the support levels defined above without any slowdown in momentum we might yet be again in trouble and head to the 7150 area.

Today's decline was induced by worries about the state of the banking sector. Bank of America's earnings made clear that not everything is perfect in the US economy. Earnings looked good at first but once extraordinary items are backed out it showed that the 1st quarter was just marginally positive . (100 Mio profit).

BOA was forced to raise loan loss provisions across all loan categories and the broad deterioration in its credit portfolio raised worries that all other financial institutions might have to face similar increases in bad debt accruals.

As announced Friday...I remain neutral right now and expect further losses. A breakdown to the 7750 level and then 7500 seems likely now.

We might be in for an interesting week if losses continue. If we see another major down day tomorrow or Wedndesday the bears will come out and really try to press the downside aggressively. Chances are we are just witnessing a market correction...however...be aware!

Until tomorrow,

Steve Benger