Wait for the Next Panic Sell-off Buying Opportunity

by Sam Collins | March 4, 2014 2:26 am

The crisis in Ukraine’s Crimea territory sent stocks reeling, with all 10 of the S&P’s sectors ending with a loss. The three major indices were hit with their biggest loss in a month.

Emerging markets took the biggest hit, with Russia’s Micex index off almost 11%. The ruble fell sharply versus the U.S. dollar and the euro.

Defensive investments rose: Gold settled higher by 2.2%; Treasuries closed on their highs with the 10-year yield down 5 basis points to 2.6%; and crude oil rose 2.3% to settle at a five-month high.

Construction spending increased in January instead of an expected decline, and the ISM Manufacturing Index for February rose to 53.2 versus an expected 51.3. Personal income for January also beat expectations, rising 0.3% compared with an anticipated 0.2%.

At Monday’s close, the Dow Jones Industrial Average fell 154 points to 16,168, the S&P 500 lost 14 points at 1,846, and the Nasdaq dropped 31 points to 4,277. The NYSE’s primary market traded 16 million shares with total volume of 3.4 billion shares, and the Nasdaq crossed 2 billion shares. On the Big Board, decliners outpaced advancers by 1.9-to-1, and on the Nasdaq, decliners outnumbered advancers by 1.7-to-1.

SPX Chart
Click to Enlarge

Chart Key[1]

After several months of pounding at the 1,850 line, the barrier finally gave way last week. But the victory was short-lived when Russia occupied the Crimea, and the market is now faced with a non-technical geopolitical event.

Nevertheless, there is broad support from 1,813 to 1,850. This band not only represents months of stock volume, but within it resides the S&P 500’s 20-day and 50-day moving averages.

Conclusion: On Monday[2], I cautioned that several technical factors, the failures of the Nasdaq and Russell 2000, and the modest breadth of 1.5-to-1 on the NYSE, restrained a full endorsement of the S&P 500’s breakout. Also, neither of the major Dow indices was close to a breakout. And finally, the Russian incursion into the Crimea was the final straw that restrained any immediate buying.

However, that final straw is a geopolitical event, and I agree with Warren Buffett’s comment that investors should not allow such events to blow out perfectly good long-term positions.

That said, this international crisis could result in a penetration by the S&P 500 deep into its support band at 1,813 to 1,850. If it does, and the overall political climate becomes more settled, we will welcome a panic sell-off as a buying opportunity. Until then, it is prudent to stand aside and patiently wait for that buying opportunity to develop.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[3].

For a list of this week’s economic reports due out, click here[4].

  1. [Image]: https://investorplace.com/wp-content/uploads/2013/05/chart-key.gif
  2. On Monday: https://investorplace.com/2014/03/dow-jones-sp-500-breakout/
  3. click here: http://www.bloomberg.com/apps/ecal?c=US
  4. click here: http://www.bloomberg.com/markets/economic-calendar/

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