Option Traders Are Watching The SPY 132 Support Level.

The market it is a punching bag that is trying to absorb blow-after-blow. The bad news keeps coming. Overseas markets were down and that created early selling pressure for our opening. Asia was down 2% and Europe was off by 1%. Once again, we have the financial sector to thank for the weakness. . Merrill Lynch is now forecasting a $1.66 per share loss in the first quarter for Citigroup. Previously, it expected a net income of $.55 per share. Citigroup estimated a $15 billion mark down on roughly $37 billion worth of subprime mortgages and CDO’s. Intel warned of lower profit margins. It cut its gross margin forecast from 56% to 54% based on lower than expected prices for flash memory. US car sales fell by 6.3% to versus the same month a year ago. US automakers expect 2008 sales to be the lowest since 1998. Today, the Fed Chairman stressed the need or additional measures to reduce preventable mortgage foreclosures as he addressed bankers in Florida. He stated that the effort would help stressed borrowers, their communities and the broader economy. Tomorrow, we will get a preview of the Unemployment Report when ADP releases its employment index. It is likely to show a rise in unemployment as weekly jobless claims have been on the rise. We will also get the ISM manufacturing number. Last month it shocked the market with an extremely weak number that sent the market spiraling downward. The SPY currently sits at a significant support level. If the market closes below 132, the retest of the relative support level will have failed and we will test the intraday lows from January. In the chart you can see that the recent 4-day decline had gaps. The market opened lower and it was not able to recover. These air pockets are the result of a lack of buying. With all of the bad news, there's no reason for buyers to step up. There aren't any "white knights" to save the day. Lenders need additional capital and mortgage insurers need help from the government. Barring either of these two events, weak economic news is likely to push the market down through the 132 level. At this stage, I prefer to stay in cash. I am seeing many good values in the market, but that does not mean that these stocks won’t get cheaper.

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