Unusual Market Conditions Present a Buying Opportunity

by Sam Collins | October 8, 2013 2:49 am

On Monday, stocks opened lower on a broad front with the Dow industrials down152 points, the S&P 500 off 34 points, and the Nasdaq down 16 points. The poor showing at the opening bell resulted from a comment by House Speaker John Boehner that the House of Representatives did not have the votes to pass either a clean continuing resolution or a clean debt limit increase, and that the president would not negotiate. Thus, a default was a real possibility.

But other commentators and analysts suggested that there would most likely be a last-minute deal. And by midday, stocks had regained about half of their losses. Then, before the close, light selling drove stocks down again and most indices finished close to their earlier lows.

Small-cap and mid-cap stocks were hit the hardest, but volume was light and there were few signs of panic. Most portfolio managers who were interviewed indicated that they would welcome a pullback in order to beef up some of their portfolios with better-quality stocks.

At Monday’s close, the Dow Jones Industrial Average was down 136 points at 14,936, the S&P 500 fell 14 points to 1,676, and the Nasdaq was off 37 points at 3,770. The NYSE traded 594 million shares and the Nasdaq crossed 363 million, one of the lightest volume days of the year for the Nasdaq. Decliners outpaced advancers on the Big Board by 3.6-to-1, and on the Nasdaq, decliners were ahead by 2.9-to-1.

VIX Chart
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The CBOE Volatility Index (VIX) closed at its highest level since June. Most technicians tend to give credence to the “Fear Index” at 20-plus. But the relatively low volume we saw tends to blunt its impact. And the political circumstances, rather than fundamental factors, tend to render it less meaningful as a predictive tool.

SPX Chart
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Chart Key[1]

The broad-based S&P 500 closed below its 50-day moving average but held above the important support line at 1,676. MACD rendered a sell signal. The next support line is at 1,627.

Nasdaq Chart
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The Nasdaq’s chart, like the Russell 2000 (not shown), is still in a strong bull advance. The index made a 13-year high last week, but MACD has issued a short-term sell signal. Support rests in the 3,694 to 3,755 zone.

Conclusion: The more speculative stocks still remain in strong bull trends. However, the headlines control the better-quality stocks, and so the S&P 500 and Dow industrials are subject to light-volume selling.

This is an unusual condition, but one in which buyers on the prowl for investment-grade stocks might be rewarded for their patience. Meanwhile, traders should continue to nibble at the technology and biotech stocks while chasing nothing.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[2].

For a list of this week’s economic reports due out, click here[3].

  1. [Image]: https://investorplace.com/wp-content/uploads/2013/05/chart-key.gif
  2. click here: http://www.bloomberg.com/apps/ecal?c=US
  3. click here: http://www.bloomberg.com/markets/economic-calendar/

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