Dow at 11-yr low; US has moved into depression

Dow at 11-yr low; US has moved into depression, says Guppy

Wall Street's woes continued unabated as US market slid to their lowest close in 11 years on Tuesday.

Worries about a decline in business and consumer spending on technology hurt the biggest names in the sector. IBM and Hewlett-Packard were two of the biggest drags.

On closing bell, the Dow plunged 250.89 points or 3.41per cent to 7,114.78. The S&P 500 Index shed 26.72 points or 3.47% to end at 743.33. The Nasdaq Composite Index fell 53.51 points or 3.71% to close at 1,387.72.

The triggers

The sell-off was fuelled by fears of nationalisation on the back of the government trying to determine, which banks need cash injections the most. Banks failing the government’s ‘stress test’ could get the funding they need but may need to, in exchange, hand over options to the national regulators.

The stress test was devised by US Treasury Secretary Timothy Geithner who said the government would test the bank’s financial health to decide the next course of action.

The National Association for Business Economics predicting that the unemployment rate will peak at 9% as the economic downturn worsens added to the market’s troubles.

Contrarian rallies

Later in the day, the government came out with an assurance that it was not looking to nationalise banks. The announcement triggered a contrarian relief rally in stocks of the financial sector.

Ford and United Autoworkers Union (UAW) reached a tentative deal on Healthcare Trust Fund. Under the deal, Ford will be allowed to fund up to 50% of its voluntary employee benefits with company stock. The move will save the automakers billion in cash and pushed its shares up almost 13%.

US now in depression, says Guppy

“This [breakdown] qualifies as a complete breakdown,” Daryl Guppy of Guppy Traders said. “What we have done is: we have moved from a recession environment into a depression environment,” he added.

Guppy added the break below 7,900 was significant and that he now sees a downside till 5,600 levels. “However, the Dow has long-term historical support at 5,300. So we are looking at a retest of 5,600 and a potential plunge to 5,300 before a recovery.”

Commodity check

In commodities, crude fell marginally as investors were worried about the weak economy and Wall Street news. The speculation that demand will decline faster than the Organization of Petroleum Exporting Countries (OPEC) is curbing supply too added to the decline.

In precious metals, gold fell as some investors sold the metal after a rally last week to the highest price since March. Silver declined too. Copper prices, however, rose for the third time in four sessions after inventories of the metal dropped, raising speculation that demand may rebound.