Watching the various analysts on media outlets, they seem puzzled by the sell-off, but if you look at the numbers you can see a definite pattern. The spec stocks are being hammered and most were way overvalued, small cap stocks are being tossed aside and many tech stocks are being given up.
Employment Numbers Reaction
The employment numbers are worrying investors because if indeed the numbers point to a return to proper levels and a return to normalization with the economy, that means an end to Quantitative Easing. It also means that Janet Yellen’s “slip” on interest rates may not have been a slip at all, but a actual plan for when to begin increasing interest rates. The employment numbers pointed to the first crack in the long-term unemployed. This non-participation rate has been the highest since the Great Depression. Fed Chair Yellen expressed concern over those numbers but today’s report indicates more long-term out seeking employment. This could mean the start to better employment down the road which will also mean pressure to the upside on wage increases. That will mean inflation which will mean a rise in interest rates.
Analysts may be puzzled but a lot of investors are not. As the afternoon has progressed selling has intensified and obviously a small amount of panic is setting in. Heavy selling is always unnerving. I wrote an article a long time ago on the FullyInformed website called Dance Near The Exits in which I indicated that everyone would stay at the party as long as the Fed was pumping in money and interest rates stayed at zero. But when the music starts to die no one will want to be the last ones at the ball.
This could be the start of heavier selling up ahead but I am actually selling puts on a variety of large cap stocks which I would own if assigned. I don’t believe the bull market will die here today. I do believe 2014 will shape up as a year of reality for many investors who were complacent after 2013. Markets never go straight up and volatility is always a part of markets. Today is proving what normal markets look like and a lot of investors are reacting by selling.
Put Selling Big Cap Names
My favorite strategy as regular readers know is Put Selling. Days like today provide lots of opportunities for selling far out of the money puts on stocks. I will have a list of the trades I did today up shortly but names include Lowes, Home Depot, Microsoft, Apple, Nike and more.
Market Direction Outlook Into The Close For April 4 2014
We may see a bounce attempt into the close but I am expecting heavier selling into the close. The employment numbers unravelled a lot of investors because they show that the economy is indeed improving and that in the end will mean a return to a more normal economy. In my opinion though it does not mean an end to the present bull market and I am continuing to commit capital but only with large cap names.
No Bull market has ever ended like this. But this could be the start of a correction I had anticipated would not start until May or June. There is no way to determine whether this is a one day event or will last into next week. Normally selling like today will breed more selling into at least the start of next week. After that we enter quarterly earnings and then I can reassess and see where the market direction is heading.