- The Washington Times - Thursday, October 22, 2009

NEW YORK | Spooked traders unraveled a rally in stocks late Wednesday as a downbeat assessment of a bank touched off fears that the market is getting overheated.

The Dow Jones Industrial Average ended down 92 points after having risen 78 points earlier in the day to a new high for the year.

Analysts pointed to a note on Wells Fargo & Co. from banking analyst Richard Bove as the source of the drop, but also said a mix of complacency and lingering concerns about the pace of the market’s climb in the past seven months left stocks ripe for a hit.

Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said the note was a reminder of troubles still in the economy and was enough to scare many traders. “They all ran for the exits at the same time,” he said.

The slide in the final hour of trading was reminiscent of the types of big swings seen a year ago at the height of the financial crisis. But analysts said the reasons for the latest slide had been building throughout the day: Major stock indexes touched their highest levels in a year, the dollar extended its drop, oil rose above $82 a barrel and Wal-Mart Stores Inc. said it was cutting prices, a sign that consumers are still struggling.

The pullback comes as analysts say some investors have become too relaxed.

The Chicago Board Options Exchange’s Volatility Index, known as the market’s fear index, jumped late in the day and ended with a gain of 6.3 percent. During trading, it had touched its lowest level since August 2008. The VIX stands at 22.2 and is down 44.5 percent this year. Its historical average is 18-20. It hit a record 89.5 a year ago.

Todd Colvin, vice president at MF Global, said investors had grown too complacent in betting that stocks would continue to climb. “We’re starting to see, ‘Wait a minute, we’re not out of the woods yet,’ ” he said.

The Dow fell 92.12, or 0.9 percent, to 9,949.36, just above its low of the day. It was the biggest point and percent drop since Oct. 1. The Dow, which also lost ground Tuesday, has fallen in three of the past four days. The Dow closed above 10,000 last week for the first time in a year.

The broader Standard & Poor’s 500 Index fell 9.66, or 0.9 percent, to 1,081.40, after reaching 1,101.36, its highest level in the past year. The Nasdaq Composite Index fell 12.74, or 0.6 percent, to 2,150.73.

Stocks spent much of the day higher after a small number of banks, including Wells Fargo, Morgan Stanley and US Bancorp, posted better results for the July-September quarter. However, all of them also had higher loan losses.

The day’s drop came as crude oil rose $2.25 to settle at $81.37 per barrel on the New York Mercantile Exchange as the dollar weakened.

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