Thursday stocks: Wall Street giveth, Wall Street taketh away

Bulls reap rewards from Mr. Market Wednesday, lose it back on Thursday as tech gets kicked in the teeth while the dormant VIX decides to get feisty.

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From Michelangelo's "Creation of Adam." Image via Wikipedia entry on Michelangelo, CC 3.0 license.

WASHINGTON, July 27, 2017 – Not much to say about Thursday’s lousy and somewhat confusing stock market action. But, after peaking a couple of trading days ago, that trusty technical indicator known as the McClellan Oscillator was heading toward the zero-line after a heady excursion rather convincingly above that point.

That meant that trouble was likely dead ahead for the U.S. stock market in general. As our headline indicates, Mr. Market can whipsaw you when you least expect it, and that’s exactly what happened between Wednesday and today.

After another surprise on the upside yesterday, stocks tanked pretty much across the boards Thursday after getting off to an excellent start. The “tell” was a sudden nose-dive in the averages around the noon hour as some remarkably heavy selling came in to swamp the highly profitable but considerably overheated tech sector.

More interesting was the spike in the VIX, the market’s measurement of overall stock volatility, i.e., unpredictability and wildness. Designed to measure what we’d call “market violence,” that is, how quickly and nastily stocks in general can swing up and down, the VIX has been close to flatline for most of the summer, which the market tends to interpret as overall market complaisance.


But the VIX suddenly spiked today right around the time that big selling barrage was incoming, suggesting some of those clever computer algorithms detected something they didn’t like, like a market top, and decided to destroy small and large investors alike. Markets recovered somewhat after a violent hour and a half.

But, as you can see in the VIX candlestick chart below, after that initial spike (the skinny line at the right-most part of the chart, the VIX didn’t settle down very much, closing considerably above Wednesday’s close, as you can see from the thick part of that right-most indicator, the “candle” part of the stick. This could be a one-day blip. Or it could be something scarier for the bulls. We’ll have to wait to see if there is follow-through in this measure on Friday.

VIX candlestick chart for 07/27/17, showing a big upward spike in today’s action, as the rightmost mark on the chart shows a surprisingly big thrust upward. (Chart courtesy Stockcharts.com)

After that blast of cold, selling air, most major techs and a lot of minor ones almost immediately sustained a heavy hit, which led to more selling as the NASDAQ in particular took it in the ear, off 0.64 percent at the end of the trading day after being down nearly twice as much during that dreadful noon hour.

By the end of the day, the damage to most major and minor averaged had been somewhat contained, as the Dow Jones Industrials managed to eke out a slight gain.

For its part, the broader-based S&P 500 average sustained a slight paper-cut loss at the closing bell after getting pummeled during much of the afternoon.

It’s clear that once the VIX spiked and the selling increased, there was at least a minor panic this afternoon in many issues allied with the tech sector. Yet the Dow, for its part, actually ended up briefly hitting another all-time record high during the day, as Boeing’s (symbol: BA) excellent earnings report helped the Industrials considerably.

Thursday’s action could be evidence of the “blow-off top” bears have been looking for. Looks like we’ll have to wait until Friday’s trading action to see if this observation is correct.

We lightened up our portfolios today in anticipation that the usual early arrival of winter is about to get way more serious than many investors think it will.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17