5 Bad Signs for a Dow Below 10,000

Close to a crash?

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September spawned a monster. More of the credit-crunched, bailout-braced financial system gave way again today, following one of the worst months in Wall Street's memory.

The Dow fell more than 800 points Monday, dropping below the 10,000 mark for the first time since 2004 as global markets suffered their worst day in years while the credit crisis spreads. Shares recovered later in the day to end down about 350, but the damage still resulted in a 3.5 percent drop in the Dow and a whopping 4.3 percent fall in the Nasdaq. The systemic crisis in the U.S. banking sector is now a worldwide phenomenon.

Today's wreckage includes a lot of bad signals for the future:

1. Bank stocks are still leading the drop. National City fell more than 25 percent.

2. Calls for emergency rate cuts mount. The odds the Fed will cut rates to 1 percent this month are now close to 100 percent, and instead of waiting until the end of the month, a cut could come sooner. Europe is already mulling over a similar move as it scrambles to shore up its own banking system. Lower rates generally support higher stock prices, but given the current state of markets, traders might not take much comfort that central banks are bracing for a severe slowdown.

3. Emerging markets fell the most ever. Merrill Lynch notes that emerging markets in the third quarter already had their worst return ever (-28 percent) after commodity prices started falling. Even so, the drop could continue, and Merrill calls this “a moment of maximum danger.”

4. Oil is below $90 a barrel. Slumping crude is among the surest signs of a growing possibility of a severe slowdown in the global economy.

5. Money market rates are climbing. Banks are hoarding cash. That's the exact opposite of what the bailout was supposed to accomplish.

And that may be the worst news of all; namely that today's drop comes after the passage of the $700 billion bailout package. Among more optimistic pundits, the deal was supposed to be the thing that returned a spark of confidence to markets. Now, we're very likely past the point where all but the most hardened traders are willing to take flying leaps on beaten-down areas like banks (or much else, for that matter). It's also a signal that normalcy on Wall Street is still largely an illusion.

Not to get all Jim Cramer on you, but when earnings reports, sector news, and buyouts take a back seat to bailout plans and the possibility of emergency rate cuts, there's not much reason for optimism.