S+P 500 Positive, Russell 2000 and Dow Jones Is ALmost Even On The Day...We Are Index Buyers At This Point

How much worse can it get? Is it time to buy Index Funds Again? We are Buyers

The chase by Frances Horodelski: How much worse can it get? CNN’s fear/greed index (which is a compilation of such momentum indicators as the VIX, breadth, put/call index, junk bond demand, safe haven demand, market momentum and stock price strength) hit zero yesterday afternoon and sits at 1 before the market opens.

The likes of Warren Buffett and Sir John Templeton have often commented on being fearful when others are greedy and greedy when others are fearful. Wise words that are difficult to live by in the heat of it all. A quick recap of yesterday’s wild action as the elevator went down and up a few times ending well into the red but well off the lows: Volume picked up significantly (to 944 million shares, the largest volume day since the one billion plus day on September 19.

The options pits were ridiculously busy with 7.4 million contracts traded (which represents 740 million shares) of which almost 75% were puts! There might have been some relief yesterday that markets closed off their lows but that relief is giving way to pessimism this morning.

 Post-close yesterday disappointments from the likes of Netflix, eBay, Wal-Mart’s outlook and the re-focus on the PIGS has traders on their back foot this morning with sagging indices everywhere. The much awaited correction is in full force with 10% or more declines in Japan, Australia, Germany, Paris, the FTSE100, Toronto and Russell 2000. The big cap generals of the Dow and the S&P 500 are playing a safer haven role – but underneath the averages – there is a feeling of collapse. About one hundred of the S&P 500 companies are down 10% or more year to date and 78% of the NYSE Composite is down 10% or more from 52-week highs. Bright light: the Russell 2000 closed UP yesterday and was up the day before too. For perspective, the small cap space was the first of the major indices to peak (March 4). Will it be the first to bottom?

The earnings cycle continues with results from companies like United Health (beat and raise although revenue a slight miss), Mattel (miss), Baker Hughes (miss) while AbbVie comes out against the Shire deal due to the Treasury Department’s adjustments to tax laws which made the acquisition less attractive. Chesapeake Energy announced a Southern Marcellus and Utica Shale asset sale for $5.375B. Goldman Sachs has reported a beat on its earnings with a nickel dividend hike (as expected) – stock is down 2%+ and may reflect among other things sequential decline in many segments – although that feels like an excuse. Apple is having its new iPad launch today and BNN will cover it live on bnn.ca.

The time for complacency has passed and time to pay attention folks. Remember with leveraged hedge funds potentially in serious unwind mode and the margin clerks knocking, selling can be indiscriminate. But, if you’re not leveraged, have cash and see a bargain or two (especially in the face of relatively decent earnings) is it time to be brave? That will be our question today.

 bnn.ca.