Is This Massive Sell-off a Buying Opportunity?

The crisis in Greece overwhelmed the stock markets of the world Monday and led to the worst day for U.S. stocks this year. Coupled with the debacle in Athens, China’s Shanghai Composite fell 3.3% and is now down more than 20%, putting the index in bear market territory. Puerto Rico also threatened to default on its debt.

Greece closed its stock exchange and banks through July 6, capping daily withdrawals at ATMs to 60 euros, or about $67. The Greek government said that it would not make the payment due to the International Monetary Fund today.

Standard & Poor’s downgraded the country’s credit rating from CCC to CCC-, saying that the likelihood of an exit from the eurozone is 50%.European markets were obviously hit hard with the German DAX down 3.6%, and Spain’s IBEX 35 fell 4.6%.

The benchmark 10-year U.S. Treasury note fell to 2.33%, down from 2.49% on Friday. And crude oil futures fell 2.2% to $58.33 a barrel. Gold futures (August) fell 0.5% to $1,179 an ounce.

At Monday’s close, the Dow Jones Industrial Average fell 350 points to 17,596, the S&P 500 was down 44 points at 2,058, the Nasdaq dropped 122 points to 4,958, and the Russell 2000 was off 33 points at 1,247.

The NYSE’s primary market traded over 855 million shares with total volume of 3.7 billion. The Nasdaq crossed over 2 billion shares. On the Big Board, decliners outpaced advancers by 9.4-to-1, and on the Nasdaq, decliners led by 6.4-to-1.

VIX Chart
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Chart Key

The Volatility S&P 500 (VIX) jumped over 34% Monday to its highest level in almost five months. The “fear index” measures the proportion of puts to calls and thus the protection that investors are buying.

Unfortunately, despite the belief among many technicians of its predictive power, in reality, it has little meaning. For example, the jump in the VIX in October 2014 was more predictive of a bottom than a top. It has, at best, been no more than 30% accurate in its ability to predict short-term tops and bottoms.

S&P 500 Chart
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Despite the 44-point decline, the S&P 500 held above its 200-day moving average at 2,053 and the intermediate trendline at about the same level. MACD, however, registered a sell signal.

Dow Jones Industrial Average Chart
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The Dow Jones Industrial Average broke its 200-day moving average at 17,677. The target for the current break is the 61.8% Fibonacci retracement of the January low at 17,165 to the May high of 18,351, or approximately 17,600. Below that is the support line at the September 2014 high of 17,350.


Non-technical outside events that cause a massive one-day sell-off are the most difficult to assess. If a decline is based on economic events that would cause fundamental changes in earnings, there is more evidence to evaluate. Monday’s sell-off was the result of an emotional response to a series of events that have little to do with U.S. corporate earnings.

Raw reactions usually cause false breakdowns. My inclination is to view the sell-off as an event that will lead to an enormous buying opportunity for those with the fortitude to act.

This week, the Trade of the Day will focus on investments that should appear on every investor’s list of stocks to buy at the right price. The first pick is a tech favorite no one should pass up.

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.

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