Distressed Volatility

It's not great to hear the words "nationalization of AIG". Both the Dow Jones Industrials and S&P are now below the July '08 lows, at 10,690 (DJIX), and 1,172 (SPX). From the looks of the charts below, the Dow needs to hold the 10,683 support level made in summer 2006, and the S&P needs to hold the 1,150 major support level made in 2004. These 350-500 point moves to the downside are definitely putting some huge holes in the charts, and are continuing to wash out forced sellers and weak holders on both the retail and institutional side. Is the market experiencing capitulation which usually creates a bottom? It all depends if banks keep going under. Be on the look out for a huge 300-400 point move to the upside on some good news, if and when that happens. Once a strong rally occurs it will create a major support level that attracts buyers if retested, possibly creating a double bottom.


chart source: stockcharts.com
chart source: bigcharts.com

I'm wondering when the tax payers will start bailing out themselves, or consumer debt (credit cards, auto loans, school loans, plasma tv loan). If the economy slows dramatically and unemployment continues to rise, a consumer debt crisis could emerge which would hit consumer debt securities, as well commercial banks holding the debt bringing more write downs. I'm going to find some data on current consumer debt levels and compare with consumer spending, income and unemployment charts.