What caused today's mini-rout?
How bad was it, historically speaking?
Should you buy this dip?
What caused it?
If you buy the spin put forward by the financial media, it was fear of a pandemic that caused today's market decline. I'm not so sure. Did the fear cause the decline, or did it just provide an excuse for the decline? I think it was more excuse and less cause.
You may ask yourself, "what difference does it make?" A lot, in my view. The market was over-extended and ripe for a correction. Sellers have been AWOL for months. Up-volume has been punk, and volatility approaching historic low readings. What better time for an exogenous event like a possible pandemic to send the bulls scurrying?
How bad was it?
For those of you with a short attention span, or not much time in the market, it was really bad. For the rest of us, it wasn't really that big of a thing.
Of the 17,635 trading days since 1950, today's decline ranks as the 16,920th worst. Put another way, there were 715 other days that were worse than today. That puts today's decline at the bottom 4% of all trading days since 1950. That's a serious decline, but far from the all-time one-day record of -20.5% set back in October of 1987.
As long as I'm crunching the numbers, here's another stat. Today's decline was a 2.4 standard deviation event. Notable, for sure, but not earth-shattering.
O.K. enough with the numbers.
Should you buy this dip?
I saw a clip on CNBC where Jim Cramer said "Here comes the panic, but don’t rush to buy the dip." Don't rush? What does that mean? Wait a day, or two, or five? My advice is to look for merchandise you've been tracking that is now marked down to a more reasonable price and buy that dip.
Groups that got trashed today include resorts and leisure stocks, like WYNN, RCL, and LVS. Airlines like AAL, UAL, and DAL. Energy stocks like HAL, SLB, and DVN. Chip and storage stocks like AMAT, WDC, NVDA, and MU.
These are candidates for the dip buyers among you. And it's also worth mentioning the groups that escaped today's carnage, such as home builders and pharma.
Final Thoughts
Today was a bad day, but not a bull market killer. What would really concern me would be a failed attempt at a rally to new highs, followed by a close below today's level. If that were to play out, all bullish bets are off for me.
This too shall pass. With low rates and fed printing money watch for bottom and buy. With fed printing press in full operation all that money has to go somewhere. Low rates justify PE expansion even if earnings not that great.
Sell when fed takes the punch bowl away. For now the party continues