Subprime Downgrades Sink Market

The markets really took it on the chin, especially in the last hour of trading. The SPX fell -1.4%, while the NDX fared a little better, losing -0.87%.

Breadth was negative, with significant deterioration in the net new highs index. On the plus side, the VIX spiked +16% and the ARMS Index finished at 1.90. Both of these represent a dramatic increse in investor anxiety, which has helped the market bottom quickly during the last several pullbacks.

The media will likely say that it was Bernanke's speech that gave investors pause, but it wasn't. It was all about the subprime market and the downgrades we got from the credit agencies. That is why the broker index (XBD) declined -2.88% on the day. LEH fell -5.0%. But again, I think the declines will be shortlived.

The earnings warnings in the retail sector didn't help, as many fear that the consumer may be in dire straights. But as earnings season plays out, I think we will see that this is not the case.

I don't want to sound pollyannish, but I still believe that the market will bounce back and finish well higher from today's levels. To wit, many leading growth stocks bucked today's weakness and finished higher. Take a look at AAPL, AKAM, GOOG, INTC, BIDU, CROX, etc.

long AAPL, GOOG