Thursday was another crushing session for both wallets and spirits:
- Dow Jones Industrial Average: -1,032 or 4.2%
- S&P 500: -100 or -3.8%
- NASDAQ: -275 or -3.9%
So, the big question now is when does the selling stop and when will the market reach a bottom? It recalls one of the most famous scientific axioms:
A body at rest will remain at rest unless an outside force acts on it, and a body in motion at a constant velocity will remain in motion in a straight line unless acted upon by an outside force.
- Newton's First Law of Motion
The contributing factors to yesterday’s selloff included a spike in fear, causing panic and some forced selling to make up for big portfolio losses. Last Friday’s selloff had many investors asking what they should buy. Many are now spying the exits and are ready to chalk this up to their own personal bad luck:
“Every time I get in the market it goes down.”
At the start of the year when record amounts of cash came pouring into the stock market, individual investor confidence spiked to 60% bullishness, according to the American Association of Individual Investors. Now, that number is just 37%, and more than likely, the next update could show it under 30%.
I continue to say a large part of the selling is to scare individual investors out of the market, and it’s beginning to work. As the warden in Cool Hand Luke would say: “They got their minds right.”
Powerful Forces Want You to Blink
There are very powerful forces like George Soros, the man that enhanced his fortune by breaking the British pound that have been betting against America for a long time. It was reported that he lost one billion dollars the night President Trump was elected; and yet, early last year, his bet against the U.S.A. was worth $750,000,000.
Soros isn’t alone. There are some deep-pocketed, very famous or infamous investors out there that get to advertise their short positions all the time.
Sophisticated Investors Get Into The Groove
I don’t want to single out individual investors because the master of the universe was giddy as well. According to the State Street Investor Confidence Index, the world’s “sophisticated investors” became very optimistic last month.
Too Much Leverage?
Another problem is that margin calls are now starting, and margin calls beget margin calls. The NYSE margin debt has marked market tops in the past, and while that may not be the case now, we saw a lot of pressure on the winners, which suggests some investors had to make up for the losers.
There are still a lot of investors asking when they should buy and are looking for charts to provide a roadmap. When the market is plunging like this, charts aren’t as useful as they normally should be to pinpointing bottoms. Right now, I would like to see Dow 23,600 hold; more importantly, there are upside levels where investors could consider building new positions. For the Dow, the big upside wall begins at 25,000, and a close above 25,200 would make me an aggressive buyer.
I wanted to share a few names with you, but I will hold off as the list is growing, and I’m very confident. Meanwhile, after the bell, another former hot stock left in an ash heap, is coming on from strong earnings, like Snapchat (SNAP) and Twitter (TWTR), we can see that FireEye (FEYE) will have a strong day today. Nvidia (NVDA) also posted amazing results and much better than expected guidance. The American International Group (AIG) missed big time but curbed selling with management’s comments, and Activision Blizzard (ATVI) offered extraordinary guidance for the current quarter.
This really is developing into an amazing chance to make money and know the more afraid you become, the greater the opportunity.
You Know The Economy Is Good
Remember what you are probably seeing in your paychecks, and anecdotally with ‘Help Wanted’ signs, are reflected in survey after survey, including the latest Quinnipiac Poll on the Economy. A record-shattering 70% of Americans are now calling the economy good or excellent, and now the majority are also giving most of the credit to President Trump.
Just keep hanging in there and be ready for that reversal session that signals buying. Some stocks are going to pop so fast and powerfully that big money will be made.
The major indices are all in the green this morning, up over 1%, and all S&P sectors are positive. Technology and financials are leading the way higher.
On Capitol Hill, after shutting the government down for a bit, a deal was struck that increases defense spending by $160 billion and non-defense by $130 billion.
Let's see how trading goes this morning. Our buy list is growing.