Market Still Searching for Bottom

The stock market reacted to good news today by sinking to new 5-1/2 year lows. Sales of new homes rose 2.7% in September, and Frederic Ruffy, options strategist at WhatsTrading.com, said, “With respect to the housing market, it appears that the bar had been set too low: The actual numbers were not nearly as bad as [economists had] forecast."

The market ended up discounting good housing news, falling off the edge in the last half hour in an all-too-frequent pattern, and closing at the day’s lows. My FOX INDEX, which measures the distance to a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ), dropped 280 points in the final half hour to -5,269, its new low (index less than 3 months old—we run the FOX INDEX whenever it hits new lows). It’s now 78% of the way from healthy to the bottom the market hit in October 2002, at the end of the last bust.