Get Ready for the Rebound
February 9, 2018
Thursday was another crushing session for wallets and spirits alike. The Dow Jones Industrial Average dropped more than 1,000 points (4.2%), coming very close to retesting the lows from Tuesday. It wasn’t just the Dow, though. The S&P 500 was off 3.8% while the NASDAQ closed down 3.9%.
The big question now is when will this selling stop and the market reach a bottom? It brings to mind one of the most famous scientific axioms:
A body at rest will remain at rest unless an outside force acts on it, and a body in motion at a constant velocity will remain in motion in a straight line unless acted upon by an outside force. – Newton’s First Law of Motion
The combining factors of yesterday’s sell-off included a spike in fear, causing panic and forced selling to make up for big portfolio losses. Last Friday’s sell-off had many investors asking what they should buy, but many are now spying the exits and ready to chalk this up to their own personal bad luck.
At the start of the year when record amounts of cash came pouring into the stock market, individual investor confidence spiked to 60% bullishness according to the American Association of Individual Investors. Now that number is just 37%, and more than likely the next update could show it under 30%.
I continue to say a large part of the selling is to scare investors out of the market, and it looks like it’s beginning to work. As the warden in Cool Hand Luke would say: “They got their minds right.”
Right now, I would like to see Dow 23,600 hold on a closing basis. But more importantly, there are upside levels where investors could consider building new positions. For the Dow, the big upside wall begins at 25,000, and a close above 25,200 would make me an aggressive buyer.
Remember, what you are probably seeing in your paychecks and anecdotally with “Help Wanted” signs pasted in windows is reflected in survey after survey, including the latest Quinnipiac Poll on the economy. A record-shattering 70% of Americans now view economic conditions as good or excellent, and the majority is also giving most of the credit to President Trump.
This really is developing into an amazing chance to make money. The more afraid people become, the greater the opportunity. Just keep hanging in there and be ready for that reversal session that signals fresh buying. Some stocks are going to pop so fast and powerfully that big money will be made.