First things first … The market looked a bit ugly for just a bit yesterday. As it was flirting with “sell off,” a friend asked what I thought. At that moment, the Dow was closing in on its low of about -135, give or take. The first words out of my mouth were, “I wish the Fed would just keep their notes to themselves.” After that, I said, my guess is the Dow will bang around here and then buyers will emerge in the last half hour. It will close about 50 or 60 down. This is not about tooting my horn (although the Dow did close at -64). I have a point to make and my “guess” of yesterday exemplifies the point.
The market still wants to go higher, yet investors are conflicted with how far it has come since October without any real pullback. So, any excuse to sell is welcome, as that addresses the fear for some. The FOMC meeting notes were just such an excuse. The FOMC thinking is absolutely meaningless in fundamental economic terms, more than likely designed to a purpose, and, yet, apparently meaningful to those who see QE3 as necessary. For what, I am not sure, but that group of investors really wants it badly.
On the other side of the equation is another group of investors who have been waiting for any kind of a pullback, a chance to get in at a place that they deem “a good entry.” They got that yesterday and they might get it again today on the news about Spain.
Spanish borrowing costs jumped at a bond auction on Wednesday, jolting wider European markets, as this week’s tough budget failed to calm investors’ nerves about the country’s finances.
I wrote a few weeks ago, as Greece faded from the news, that Spain would be the next target of the breathless media. My guess is today we will see more selling, especially with the blaring headlines and the ability of many to conjoin the FOMC notes and Spain at the hip. Certainly, the futures are predicting a really red day. Perhaps this is what those savvy investors have been waiting for. Perhaps this is the coming of the correction on the lips of most pundits.
Even so, this is not a time to bail or get queasy. The factory orders data that came out yesterday and the data out of Britain and China show the global economic momentum is still headed in the right direction.
US factory orders increased by 1.3%, which is on par with the 1.4% increase that had been expected. Britain posted its best PMI Construction number since 2010 and China’s PMI Services reading set a six-month high.
Ultimately, if the indicators keep pointing to a mending economy, the market will resume its upward trend. Tomorrow’s US employment report should support this. If not so good, then more of what we will see today – fear. Perhaps, though, a big sell off for a day or two is an opportunity to act like the big boys. Use it as an opportunity for a swing trade or a longer term investment opportunity. Again, the financial sector is ripe for more value and profit.
As the rate of asset price decline slows, conditions for the banks improve, mostly due to a potential bottoming in the housing market … banks are loaded with dead weight assets, mainly houses.
Trade in the day – Invest in your life …
