Dow Down 508--Tomorrow Morning Could Be Ugly

Today was a scary market as the market started to decline as Mr. Bernanke was speaking. It rallied back a little until President Bush had a word or two to say about the economy and the financial crisis. The market proceeded to go down but was volatile as rumors of the Morgan Stanley deal with Mitsubishi was in trouble. Both companies denied this. Then there was Bank America saying they were going to raise $10B at a 32% discount from Monday's closing price while also cutting its dividend in half. They reported poor third quarter numbers. The fear in the market continued and finished very heavy with a big drop in the last hour of trading.

Thankfully the day was over but it wasn't as Alcoa reported very disappointing numbers. Next came Met Life. It pre-announced its third quarter numbers with many write-offs and an announcement that is is going to issue 75mm shares tomorrow which will raise about $2.7 billion if it is completed at today's closing price. Alcoa is typically the first company in the Fortune 500 to report quarterly numbers and it may be a prelude to a very very weak quarter. Does Met Life's announcement foreshadow trouble with other Life Insurance companies such as the Pru and Principal Financial?

The chatter continued globally all day as many countries in Europe are scrambling to shore up their own financial systems and ease the global credit crisis. As we have said in the past, the credit crisis is leading the charge but ultimately a weak economy will hurt companies, increase unemployment, stretch the consumer, and lead to a prolonged recession.

As we enter tomorrow, Asian markets and European markets are likely to have had major declines over night. Unless the Federal Reserve and its European counterparts announce some major interest rate cuts, I would anticipate the Dow could take a dive in the first two hours of the day and maybe bottom at 1000 points down if the market moved into a capitulation phase where volume increases and everybody is a seller. The Vix will reach new heights of fear but if you have maintained liquidity, new opportunities will be created in the market. Buy high quality stocks that do not have large capital requirements or sit on the sidelines until it is clear that the market has settled down and headed back up.