Stocks took another big hit Monday, with all 10 of the S&P’s sectors closing in the red. Before noon the market seemed to be holding, but heavy afternoon selling drove the Dow down 1.4% by the closing bell. The S&P 500 fell 1.7% for the day, while the Nasdaq was down 1.5%.
Volatility was again high, as Monday marked the fifth straight triple-digit move in the Dow industrials. The CBOE Volatility Index (VIX) closed at its highest level in more than two years.
Energy stocks continued their slide, off 3.1%, as crude oil fell. Airlines took a beating as a result of the Ebola scare. Despite showing intraday strength, biotech stocks also lost ground with iShares Nasdaq Biotechnology ETF (IBB) falling 2%.
At Monday’s close, the Dow Jones Industrial Average fell 223 points to 16,321, the S&P 500 lost 31 points at 1,875, the Nasdaq was off 63 points at 4,214, and the Russell 2000 outperformed all other indices by losing just 4 points at 1,049.
The NYSE’s primary market crossed 905 million shares with total volume of 4.3 billion shares. The Nasdaq traded 2.4 billion shares. Decliners outpaced advancers by over 2-to-1 on the Big Board, and by 1.3-to-1 on the Nasdaq.
Some of our readers doubt that the long-term trend is still up. The 17-month chart of the S&P 500, run on an intra-month basis, shows that although the black price line is falling, it is still above the red 17-month moving average line by over 46 points. A sell signal is generated when the black line crosses down through the red line.
But one system is no substitute for a combination of both fundamental and technical research.
The major bull market support line for the S&P 500 is at about 1,700, which I discussed in the previous Daily Market Outlook.
Conclusion
For months, market mavens have been wishing for a correction so they could buy stocks at lower prices. But now that many stocks, especially in the higher P/E technology sector, have fallen over 30%, they are whining that a bear market has begun. Perhaps it’s just a case of being careful what you ask for.
Fundamentally, with a P/E ratio on the S&P 500 now at under 16, and technically, with a confirmed Dow Theory buy signal just two weeks ago, I find it unlikely that the bear could be so easily stirred from his den. Instead, we are about to face an unusual buying opportunity. Those who are courageous will benefit, but those who missed the past three years of the bull market advance are likely to talk themselves into inaction again.
The reason for the current decline is clear, and it has little to do with Ebola, the Middle East or Russia. The truth is that with the Federal Reserve out of the bond-buying game, we must now depend on solid corporate earnings to propel stocks higher. The financial press is talking “fear” because fear sells better than optimism.
It is time to begin staging in purchases of the best-quality stocks that have been beaten down. Thus, starting tomorrow, my Trade of the Day will focus on those stocks that I believe are sound bargains at current prices.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
