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Significance of late market sell-off
Today's market action is typical of late bear markets.
S&P 500 - Intra-day
October 9th
Stocks began the day 1.5%
higher following a good earnings report from IBM. As it typical of the whole week, some
investors used the opportunity to sell into strength. Even so, by 2PM, the S&P 500 was
close to unchanged. However, 2PM
is normally when the trading desks of mutual funds make sales to recover
redemptions, and the market sold off a little further, down less than
1%. Between 3 and 4PM however, the
market collapsed an additional 5.7% - down 7.6% on the day down 21.9% on
the month, down 37.0% on the year and down 42.3% from the record high,
ironically this date a year ago.
This is ridiculous!
The economy didn't shrink 20% in the last 6 days, or 40% in the
last 52 weeks. Unfortunately,
that's irrelevant as the hedge funds once again try to take advantage of
the economic crisis. The SEC
removed a three week old ban on short sales for financials this
morning. Someone from the SEC
needs to go before Congress to explain why the rule couldn't stay in
place until, let's say January.
As a result, firms like ours that see the current
situation as a generational buying opportunity, with good companies like
General Electric and Microsoft trading at exceptionally low valuations,
are still sitting on the sidelines.
We've said it before and we'll say it again - we're not selling
anything!
Yours sincerely,
David Edwards
President
The Heron Capital Management
client letter is published immediately following month end and when
market conditions require comment. The views expressed in this letter
represent HCMI opinion and strategy as of the date published and can
change at any time upon receipt of new information. Data quoted in this
letter are from sources deemed reliable, but no guarantee of such data is
implied.
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