By Pete Biebel, Senior Vice President

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I’ll be traveling this weekend and will not publish my usual Monday market commentary on 10/29.  Hence, I want to offer a brief market update in light of recent market action and knowing that the next regular commentary will not be published until Monday 11/5.

Some thoughts on the market’s October plunge:

  • While it is of little consolation now, we had plenty of warning that the market was on the precipice.  The key levels were well known, and when those levels were taken out, there was a rush for the exits.
  • Much of the selling, especially on the down-draft days was systematic, mechanical systems following their rules and selling regardless of “value” as their signals were triggered.  More selling triggered more signals.  There has been no significant shift in market fundamentals to justify the mark-down other than many stocks are now 10% cheaper than they were a week or two ago.
  • It’s probably not over.  The sell-off has generated significant negative momentum, not only in the broad averages, but also in several important sectors.  At least one, and maybe more lower lows are likely over the next few weeks.
  • But, it probably won’t get a lot worse.  With Thursday’s rebound, SPX was near 2700, about 8% below its September high, but still a small net gain for the year.  A reasonable target might be a test of the February lows near 2530 – 2550 on SPX.  Dropping to near the February lows would only be another 6% or so decline.
  • We shouldn’t be surprised by another spike in volatility.  We shouldn’t be surprised if/when rebound rallies tack on a lot of points in a hurry (“rally through the vacuum” days) or that they occur on relatively low volume.  Nor should we be surprised if the averages encounter significant resistance on rebounds to their 200-day moving averages.
  • I don’t want to be in a rush to buy, but I would encourage investors to get their shopping lists ready.  I probably won’t be too eager to try to call a bottom in any of the Tech and Internet stocks, but the Energy sector has also been a big loser over the past several weeks, and many of its stocks already seem to be good fundamental values.
  • The odds are pretty good that things will work out in the long-term.  Welcome these pullbacks as buying opportunities and don’t worry too much about a temporary reduction in portfolio value.  This pullback might be a great opportunity for anyone who has felt that they’ve been underinvested over the past year or two, to increase their equity exposure to a more suitable level.

Links to previously published commentaries can be found at News/Blog/Market.