Traders Book Profits; Markets Take a Dip

Contrary to what I posted yesterday about inevitability and the lack thereof in the stock market, investors (many of whom read my blog and no doubt wish to prove me wrong) did what prudence would dictate and booked some profits.

So many profits were booked, in fact, that the selling sparked a mini-panic, sending the major indices down by roughly 2% at the worst of the trading. There's no indication as to what exactly caused all the selling, but it began to occur right after 10:00 am and the worst of it was over by noon, so it looked to be pretty organized, likely by the usual culprits in all this, the Goldman Sachs and Citigroups and JP Morgans.

The brokerages and banks have to book profits, and sending the markets down 2% on volume is nothing to really get excited about. It happens all the time, in bull markets as well as in bears, and there was nothing unusual about this except the overall timing. Market pundits have been calling for this kind of pullback for weeks, so today being the first day of September, it was ripe for the self-fulfilling prophecy trade.

And, while volume was significantly higher, it was still not so extreme as to cause alarm. In fact, large-scale selling of positions that, prior to today, were considered solid, is nothing more than an invitation to buy more because the bull market is really just kicking into a secondary phase in which wild gyrations in both directions will be evident, with the overall result being a slight increase on the indices at the end of each month or quarter.

This one-day event should not cause anyone to second-guess themselves or their positions, except to maybe take a little off the table. Stocks are for the long run, and this is a short-term move. While there's some concern that we may be headed for a "double-dip, " the data doesn't suggest it and the markets won't tolerate any unjustified corrections. September is an odd month, coming at the end of summer and just prior to third quarter earnings. It's essential to stay very focused and not be swayed by short-term thinking as it may all prove to be wrongly-directed.

Dow 9,310.60, -185.68 (1.96%)
NASDAQ 1,968.89, -40.17 (2.00%)
S&P 500 998.04, -22.58 (2.21%)
NYSE Composite 6,487.81, -155.43 (2.34%)

The internals confirmed what was already obvious. Decliners led advancers by a wide margin, 5218-1283, but it is interesting to note that there are still a good number more new highs being posted - even today - than new lows. New highs took the edge once again, 123-48. There were more new highs and fewer new lows than yesterday, which may supply some insight into this little bout of selling, notably, that there were still buyers bidding up the high fliers while not unloading the bottom-feeders. Looks and smells like garden variety profit taking according to those figures. Volume, as noted, was among the top ten highest of the year, but hardly unusual.

NYSE Volume 7,914,128,500
NASDAQ Volume 2,727,714,500

Commodities took the brunt of the selling, mostly those in the energy-related sector. Crude oil for October delivery was thumped again, down $1.91, to $68.05. Natural gas, for which there is an abundance of supply, was smashed lower again, down 16 cents to $2.82. The combination of lower oil, gasoline, heating oil and natural gas has to be seen as a positive for the consumer. Even though Wall Street may not initially appreciate the ramifications of lower energy prices, the gain in purchasing power is to everyone's advantage. Instead of plowing more and more money into non-renewable expenses, consumers, if energy prices continue lower into the winter, will have more discretionary income and spending power. Leading into the final months of 2009, the benefits of a stronger consumer are obvious.

The metals were the only sector showing any gains on the day. Gold added $3.00, gaining to $956.50. Silver was up 14 cents, to $15.06. The silver closing price was the highest since June 11 and continues to indicate higher prices for silver in coming months. Aside from its collectible and intrinsic value, silver enjoys more industrial use than gold, and supply is being strained. If economies worldwide advance, silver could top the $20 it saw in 2008.

Today's trading was expected and hardly a blip on the worldwide equity radar screen. Unless there is significant follow-through Wednesday through Friday, it will be seen as profit-taking and nothing more. If Wednesday's private employment figures from ADP and other data are positive, as today's ISM report was, then the market is taking off on its own tangent and presaging a potential pitfall in months ahead for the US and world economies.

Nothing will be set into stone until the government's non-farm payroll report for August hits the wires on Friday. This is a data-heavy week which bears close scrutiny and an iron will.