A sharp sell off rocked Wall Street into the close on Friday in the final minutes. Stocks like Exxon Mobil Corporation (NYSE:XOM) and Microsoft Corporation (NASDAQ:MSFT) sold particularly hard. These two stocks have been some of the weakest in recent weeks. The weakest stocks will always be hardest hit on any sharp sell. The reason for the sharp sell off into the close can be looked at from multiple angles. It is important to understand these angles as it will help us understand the coming week and how to profit
The Memorial Holiday weekend means three days that the U.S. markets are closed. In recent weeks, the weekends have been treacherous with news out of Europe dominating the wires. In recent weeks, the North and South Korea issues have also been hampering the markets. Not only do traders want to be mostly in cash prior to any weekend, but add an extra day in there and it means even more risk and more of an incentive to sell into the close on Friday.
In addition, while bounces have occurred in this brutal market, bounces have not lasted more than a day or so. With Thursday’s monster 2.5% gain in the markets, traders do not feel the markets can sustain the rally for a longer period. Profits were taken.
As of Friday afternoon it was pretty apparent the Gulf of Mexico oil spill was not going to be stopped. This “Top Kill” by BP plc (NYSE:BP) had been dragging on all week. It did not take a genius to see it was not working from the live feed available to the public. As of Friday, the markets were beginning to get nervous again over this factor. Overall, the oil spill is more of a driller issue but its impact causes problems for the overall market. The oil spill adds to the overall negativity for the markets. Not only is Europe a mess, the Euro collapsing, Asia a mess, but here in the United States, this oil spill just reminds the markets to be negative. The economic impact to the Gulf coast is also brutal and will have long lasting effects. Not only did BP get hit sharply but other drillers like Transocean LTD (NYSE:RIG) found themselves down almost 5% for the day.
Overall these factors helped cause a sharp sell off in the final minutes of trading. In this market, it must be expected that any extended market closure for any reason will make traders sell positions for the safety of cash. Should things remain calm over the entire holiday weekend, the markets may get a small relief push early on Tuesday. Watch the Euro, that will give us a great idea about the direction of the markets on Tuesday.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
