WASHINGTON, February 9, 2018: For a fair amount of time Friday, the Dow Jones Industrial Average (DJIA) and other major averages seemed doomed to take yet another savage beating – this after the Dow had already sustained not one but two plus-1000 point one-day declines just this week. Was Friday’s surprise turnaround and subsequent close to the upside just another dead cat bounce like Tuesday’s?
We’ll have to wait until next week for an answer to that one. In the meantime, relieved individual investors welcomed a late-arriving “turnaround Friday.” The DJIA suddenly put the brakes on what looked like another harrowing decline before doing a 180 and closing up.
“The Dow Jones industrial average rebounded more than 300 points Friday, with buying in the final hour lifting the major indexes.
“The index swung more than 850 points in volatile trading Friday. The S&P 500 and the Nasdaq composite joined the Dow in its trip higher, both rising more than 1.4 percent.
“At its lows Friday, the Dow had fallen more than 500 points or 2.1 percent. The average experienced two drops of more than 1,000 points and two gains of more than 400 points.”
Just as nearly all stocks were slammed again and again this week, most issues, whether good, bad or indifferent, still managed to gain some upside Friday. That led to hope that today’s action wasn’t the kind of misleading dead cat bounce we witnessed earlier this week.
Still, the carnage was truly awful this week, the worst trading week we’ve seen since the Great Recession first reared its ugly head some 10 years ago. At that time, it was a cascade of lunatic “liar mortgages” and the exotic collateralized debt instruments supporting them that started a waterfall decline in stocks and bonds that took well over a year to fully halt.
This time around, it appears to have been a vaguely similar chain of events that toppled 2018’s already over-extended U.S. stock and bond markets. We’ve opined elsewhere on the massive leveraged investments individuals and institutions alike have been making in recent months in both stocks and tricky, misunderstood ETFs and ETNs that track market volatility.
When 2018’s irrational exuberance blew up near the end of last week, the subsequent waterfall declines in stocks and bonds likely led to the massive margin calls and epic forced sales of stocks that are legally required to keep debt levels in line with Federal and state-mandated standards for cash and equity maintenance levels in margin accounts.
That’s a major reason, we believe, why the meat-grinder decline of the last 10 trading days or so has been so ruthless, relentless and remorseless as the late, legendary U.S. Navy Admiral Hyman Rickover once proclaimed in a different context.
Again, although all investors, including this columnist, breathed a sigh of relief after Friday’s positive closing bell was rung at 4 p.m. ET, it will take more convincing to prove whether this positive day marks a sustainable bottom to what is now an official stock market correction, or whether it’s just a head-fake. That’s what a lot of investors fear, which is why we’ve been hyping that term a bit here.
Best advice to all with a stake in this heretofore fabulous but now damaged bull market: Take the weekend off and do something fun. The uncertainty will return on Monday. When that opening bell rings at 9:30 a.m., once again, anything goes.