The S&P 500 (SPX) declined 21 points and the Dow Jones Industrials (DJIA) declined 231 points yesterday. Of course the absolute magnitude of the declines dominated headlines and caused some gasps amongst individual investors. However, the relative declines of 1.17% for the SPX and 1.41% for the DJ Industrials were not all that worrisome. Let me put it this way, 200 points is the new 100 points. In other words, with higher index levels come greater daily point swings.
Economic Data Remains Positive
These declines occurred despite positive economic data – weekly unemployment claims and retail sales which were reported early in the day. In the long run, economic fact will trump emotion. In the short run, emotion can rule the day.
The excuse given for the decline was the situation in Crimea and Ukraine. However, the low volume sell-off which was focused on many of the prior year’s big winners appeared to this market participant, to be more of profit taking, and a buyers strike than the beginning of a major pull back. That is not to say that the situation with Russia won’t wreak more havoc on the global markets. I just think that the impact will be short lived and transitory in nature.
Sell-off Was Due to Derivative Expiration
I would like to submit my hypothesis, for your consideration, that the Thursday sell-off was related to today’s quarterly derivative expiration. Typically the markets will have a poor day on Tuesday, Wednesday or Thursday preceding options expiration which can be exacerbated on the quarterly expiration days..
The markets are likely to remain jittery ahead of the weekend. Use the weakness to begin new positions or add to existing positions.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC had no positions in stocks mentioned — although positions can change at any time.
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