A wild day of trading on Wednesday ended with the Dow industrials down 1.1% but small caps up. The Russell 2000 closed 1% higher, and the recently battered Dow transports registered a small gain after falling more than 9% from their all-time high just one month ago.
Hedge funds and margin liquidations were blamed for the frantic selling that took place in the morning. Block selling and the highest volume in nearly three years attracted bargain hunters late in the session.
The early panic selling drove some investors to the safety of bonds. The yield on the 10-year U.S. Treasury note fell to 2.09% from 2.21% on Tuesday.
Airlines dropped sharply after reports that a second Ebola victim had been on a Frontier Airlines flight from Cleveland to the Dallas/Fort Worth Airport. The Texas health care worker reported symptoms the day after the flight.
Bank of America (BAC) fell 4.6% despite reporting better-than-expected earnings.
The Empire State’s business conditions index slowed drastically in October to 6.17 from 27.54 in September. Retail sales fell 0.3% in September, following August’s 0.6% gain. The U.S. producer price index fell for the first time in over a year in September, down 0.1% versus an expected gain of 0.1%.
At Wednesday’s close, the Dow Jones Industrial Average fell 173 points to 16,142, the S&P 500 lost 15 points at 1,862, the Nasdaq was down 12 points at 4,215, and the Russell 2000 gained 11 points at 1,072.
The NYSE’s primary market traded 1.2 billion shares with total volume of over 6 billion shares. The Nasdaq crossed 3 billion shares. On the Big Board, decliners outpaced advancers by 1.1-to-1, and on the Nasdaq, advancers were ahead by 1.6-to-1.
There were 6,039 block trades on Wednesday compared with 5,109 on Tuesday, a very high number only recently exceeded by the last day of Q3. A block trade is defined by the NYSE as 10,000 or more shares or $200,000 or more per transaction.
For those who want to see the “privates” (mid and small caps) lead, Wednesday was a rare boost to morale. After a sloppy start that dropped the Russell 2000 to 1,040, a 30-minute rally ran it to 1,063. The index then sagged to 1,047 at 1:30 p.m., but rallied in the afternoon and surged to its high of the day, 1,076, in about 10 minutes. A small round of profit-taking dropped it a couple of points before closing at 1,072.
The index closed just shy of a key reversal day, since it did not close above the prior day’s high. But it met all other requirements by opening lower than the prior day’s low and closing higher than the prior day’s close.
But the index is not out of the woods yet. As I said earlier this week, “It will take more than a one-day rally to reverse the death cross from mid-September and the break of the August low that defined a change in its near and intermediate trend. A close above the 1,120 break would help to change the momentum that has built up since the death cross.”
Conclusion
Wednesday’s panic selling spurred by big hedge funds may have turned the near-term tide. Traders should be very careful if playing the short-term sell side of the market. But long-term investors should commit some reserves, purchasing solid companies with excellent track records, like my Trade of the Day. For the remainder of the week, the Trade of the Day will focus on my favorite long-term, high-quality investments.
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.
