Stocks: DJIA Futures Down 400 Before Opening Bell

[Bystander]

Ten hours to opening bell, and Bloomberg's "DJIA Futures" are down a solid 400; could be an "interesting" day on Wall Street.

 

[Astronuc]

Ten hours to opening bell, and Bloomberg's "DJIA Futures" are down a solid 400; could be an "interesting" day on Wall Street.

Could be another painful day, like the last two.

Asia stocks plummet as China rout gathers pace, yen rallies
http://finance.yahoo.com/news/asia-down-china-woes-unnerve-001919045.html

 

[Bystander]

... or, the program traders are setting up to gut short-sellers. VIX is way up ---- going to be worth watching either way.

 

[Astronuc]

So, an interesting beginning.

The Dow Jones Industrial Average tumbled 578.2 points, or 3.6%, to 15866, the S&P 500 plunged 70 points, or 3.7%, to 1899, and the Nasdaq Composite dived 189 points, or 4.1%, to 4513.

http://finance.yahoo.com/news/u-s--...-traders-race-into-safe-havens-121002330.html

So far, today range of the DOW Industrials - 15,370.33 - 16,459.75. The DOW opened at 16,459.75.

Dow Plummets Amid Global Sell-Off, Falls Whopping 1,000 Points After Opening Bell
https://gma.yahoo.com/dow-falls-whopping-1-000-points-opening-bell-141933392--abc-news-personal-finance.html

 

[Greg Bernhardt]

Wish I had money to fund my IRA today. This is an opportunity.

 

[Bystander]

opportunity

I don't think sharks would get in the water with brokers today. The first round of "program shorts" this morning was vicious --- looked like Jeremy Wade's tiger fish.

Edit: Add, 1130 EDT, second round of shorting.
2nd Edit: 1230 EDT, looks like people are covering last Th, Fri shorts.

 

[russ_watters]

Wish I had money to fund my IRA today. This is an opportunity.

Not that I have a ton, but I just emptied my checking account into the S&P (minus a little I need until next week's payday).

 

[Greg Bernhardt]

Not that I have a ton, but I just emptied my checking account into the S&P (minus a little I need until next week's payday).

Nice! I've now lived long enough not to be scared of these corrections, but to welcome them, that is if I have the money, lol. AMZN is looking real tasty.

 

[russ_watters]

AMZN is looking real tasty.

Yeah, that's a good point. Bad press for a generally good company tends to be a buying opportunity. And in general, going against the heard tends to be a good thing.

 

[Astronuc]

AMZN is looking real tasty.

Really?!
EPS = -$0.41
Dividend = N/A, Yield = N/A
Day's Range: 451.00 - 489.76
52wk Range: 284.00 - 580.57

1y Target Est: 650.00 ! Why?!Monday's closing:
S&P500: 1893.21, -77.68
DowInd(30): 15,871.35, -588.40
NASDAQ: 4526.25, -179.79

Oil prices steady but near recent lows as Asian stocks resume slide
http://finance.yahoo.com/news/oil-prices-steady-near-recent-013315599.html

Australia's All Ordinaries (^AORD, or ASX) seems to be on the rebound.

I would have liked to have grabbed GE at $20.00 per share this morning. BHP looks interesting if they can maintain their dividend.

 

[phinds]

I don't think sharks would get in the water with brokers today. The first round of "program shorts" this morning was vicious --- looked like Jeremy Wade's tiger fish.

I've never seen anything like the first 15 minutes of trading this morning. HUGE drop in a ton of exchange traded funds and then an almost immediate huge recovery of most of the losses for most of them. GOT to be programmed dumping and then programmed taking advantage of the ridiculously low prices. When I first looked at the charts today I kept thinking at first that my broker had gotten some serious data mistakes but it was real.

 

[phinds]

Not that I have a ton, but I just emptied my checking account into the S&P (minus a little I need until next week's payday).

Smart move. I too put some money into the S&P, but in a leveraged way (XIV, a complicated inverse volatility ETF that dropped like a stone this morning but is coming back nicely.)

The Chinese stock market, unlike the American one, bore little if any relationship to the underlying economy and the bursting of its bubble likewise does not reflect its underlying economy, although that burst is hurting their burgeoning middle class and will have a run-on effect.

The American economy is actually doing pretty well and this panic selling SHOULD reverse itself nicely over the coming weeks and months. There is, of course, always a chance that this "irrational exuberance" in reverse could continue for a while and not turn around as quickly as I expect but that seems unlikely to the extent that I'm willing to make a modest bet on it, particularly since I'm quite willing to wait it out if it does take longer.

 

[Vanadium 50]

Wish I had money to fund my IRA today. This is an opportunity.

Not that I have a ton, but I just emptied my checking account into the S&P (minus a little I need until next week's payday).

I am curious as to why you feel this sense of urgency - i.e. why you think that today is the day to buy and not tomorrow or some time next week.

 

[Greg Bernhardt]

I am curious as to why you feel this sense of urgency - i.e. why you think that today is the day to buy and not tomorrow or some time next week.

Not speaking so much for the day as for the event

 

[Bystander]

first 15 minutes of trading this morning

a modest bet

"... moderation in all things ..." or however the saying goes. All my "cues" have been tied to commodities, and those have made no sense to me for the last 15 years --- keep wanting to "adjust" positions, and just have to sit still and ride.

 

[russ_watters]

I am curious as to why you feel this sense of urgency - i.e. why you think that today is the day to buy and not tomorrow or some time next week.

Or Friday? The market was down 6% last week and I was thinking about it then. But the particular urgency today was based on similar perceptions to what others mentioned:

1. The instant drop of 1000 points, then gaining most back, with massive trading, looked like a software-induced crash/recovery. IE, much of what happened isn't real. Though, fake panics can cause real ones:
2. There is some panic in the air due to China's crash and interest rates being on the move, but...
3. The US economy looks fundamentally strong.

To sum-up: the urgency today was that I didn't want to miss-out on the panic!

 

[Bystander]

"Hedge fund that called sell-off closes short position;" Bloomberg --- or words to that effect.

 

[Greg Bernhardt]

Today futures rise 4% so yesterday's lows would have been a great buy.

 

[Astronuc]

DJIA futures 16,291.00 Up 582.00(3.70%) 9:14AM EDT

DJIA 16,195.18 Up 323.83 (2.04%) 9:32AM EDT and was up about 350 points two minutes later.

 

[Bystander]

Off 200 for Tue. close; up all day, and off 200 --- .

 

[phinds]

Off 200 for Tue. close; up all day, and off 200 --- .

Yep. Solid, continuous, selloff throughout the last hour of trading. It happens.

 

[Vanadium 50]

Off 200 for Tue. close; up all day, and off 200

This is why I asked "why the urgency?"

An element of the stock market is investing, and an element is gambling. Trying to time the market has more of the latter about it.

 

[Astronuc]

Off 200 for Tue. close; up all day, and off 200 --- .

Open: 15,882.27 Day's Range: 15,651.24 - 16,312.94 Close: 15,666.44 Down 204.91(-1.29%) 4:33PM EDT

A rollercoaster - or whipsaw

AAPL and DIS ended the day up, but all other components were in the red. I suppose folks thought that AAPL and DIS looked like bargains.

US STOCKS-Wall Street's rally goes up in smoke, indexes end lower
http://finance.yahoo.com/news/us-stocks-wall-streets-rally-204535234.html

Investors cited more worries that a slowdown in China could hobble global growth, even after the country's central bank cut interest rates on Tuesday for the second time in two months.

The move came after Chinese stocks slumped 8 percent on Tuesday, on top of an 8.5 percent drop on Monday.

"People are still nervous about overseas and what might happen tonight. Nobody wants to sit around and see what happens," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

Some folks who planned to take off, but came to work instead, should have taken off.

Marc Faber has some good points. The indices are overpriced based on the broader market.

 

[Bystander]

element of the stock market is investing, and an element is gambling

"House odds" and programmed trading have reduced "investment" to "buy and hold," pay capital gains on the integrated market inflation, and hope that it exceeds interest on savings (no brainer right now), and hope that that covers inflation of property taxes, utilities, goods and services through retirement.

 

[Astronuc]

Wednesday - Try again.
Open:
15,676.26

Day's Range (so far):
15,676.26 - 16,100.11

Close: 16,285.51 Up 619.07(3.95%) Aug 26

The last 5 days

 

[russ_watters]

This is why I asked "why the urgency?"

An element of the stock market is investing, and an element is gambling. Trying to time the market has more of the latter about it.

While the second part is true, it is a broad range and a certain amount of timing isn't outside of normal "investment", otherwise one would never be able to make any adjustments in their portfolio. I'm enjoying the drama of this and without context, what I did may seem like it is closer to gambling than it really was (though my purchase choice should have been a clue).

I'm not a day trader. It's probably been 8 years since I last sold a stock; for a downpayment on my house. I'm running a surplus these days and don't want to keep more than a months or two worth of funds in my checking account. So every few months, I'll send some to my investment account. Last time I sent less than I could have because of anticipated summer spending, so I was +- a few weeks from my next buy. Generally, earlier is better, but this time by stalling a bit I got a discount. And I did go aggressive on how much I put in (no worries: overdraft protection). Whether I got the max discount possible isn't critical and is an impossible standard anyway. Sometimes I'll buy individual stocks (killing FB but taking a bath in BABA right now), but most of my money is in an S&P index fund.

So; urgency? Not much. Gambling? No.

"House odds" and programmed trading have reduced "investment" to "buy and hold,"

Hasn't "buy and hold" always been the primary "investment" strategy people use? The vast majority of money ordinary people invest in the stock market is retirement funds, which nearly by definition you buy and hold for decades. Most people aren't making constant adjustments to their retirement accounts.

 

[Bystander]

Hasn't "buy and hold" always been the primary "investment" strategy people use?

Back in the Jurassic, the lesson was "buy blue chips and/or low P/E," hold twenty and re-evaluate. Buy anything on the NASDAQ today, and it takes a crystal ball to say what business the company will be in after two years --- Google could pick up Victoria's Secret and be using Jimmy-John's to deliver the V-S line of Duluth Trading Co. work clothes. Dow --- CAT, BA are probably still going to be around in five --- possibly as Cat-Komatsu and Boeing-Sukhoi, but around. It's all gambling these days.

 

[mheslep]

At the end of 2007 the Dow Jones stock index was hovering under 14,000. By March 6, 2009 the DJI had fallen to under 50% of the 2007-8 high. The DJI did not return to its 2007-8 high for five years.

This year, the DJI has dropped ~10% since its peak in May, much of it in the past couple weeks. This fall has caused many in this forum to call the event an opportunity for investment, but without explanation for the fall other than to label it a panic. What information supports the call that this is the bottom of the market, or anywhere near one?

Edit: I see Russ provided some explanation ...

2. There is some panic in the air due to China's crash and interest rates being on the move, but...

but the causes, China and interest rates, are labeled as panic driven. Why can't they be completely rational? Money everywhere has been driven out of bonds into the stock market for years given an unprecedented period of nil interest rates. The fed action propped up the market more than it would have otherwise been, perhaps far more, I know not.

 

[Vanadium 50]

The price of stocks is a mix of rational and irrational factors - or if you like, economic and psychological factors. Day to day, especially over the last week or two, psychological factors have been running strong. In my own investing, I try and move gradually, so as to integrate out the psychology.

Now, why are stock prices moving lower?

• In May, stocks were unusually expensive. Regression to the mean.
• Zero interest from the Fed meant little in the way of alternatives. There are signs this may change.
• The dollar has been strengthening. That means the value of companies relative to the dollar is shrinking.
• Instability of multiple world markets - China and Europe, and the BRICs are always a bit twitchy.

 

[russ_watters]

This fall has caused many in this forum to call the event an opportunity for investment, but without explanation...

The specifics of the cause and what comes next are not that important. What you guys are not recognizing is that because the stock market rises over time, every day is a buying opportunity and every drop is a bigger buying opportunity.

Investing in the stock market for the long term is almost the exact inverse of casino gambling. In the casino, the trend is always down, so the longer you stay in, the worse you do. Based on the knowledge that you will eventually lose everything, the typical "win" is when you walk away from the game with something more than zero. The earlier you leave, the better.

In the stock market, because it rises over time, yesterday is usually a better buying opportunity than today: The earlier you can get in, the better. And when a correction happens, it resets the market back to what it was like a year earlier. This negates the wins of the past year, but enables buying today at last years' prices.

My win came the instant I clicked "buy", locking-in the losses of the previous week. The specifics of what happened and why don't matter - and what happens next week or next month can't change that.

but the causes, China and interest rates, are labeled as panic driven. Why can't they be completely rational?

They can't be completely rational because at least in the case of interest rates, the effect is preceding the cause. The fed drops hints of what they might do because they know that while the underlying action is rational, the way people initially react - instantly and overzealously - is not.

This is neither here nor there, though. Interest rates are the Fed's hand-brake: when the Fed pulls on it, it's because the economy is doing well.

Now, regarding the specific point you were making:

At the end of 2007...

Do you really think this is 2008? I'll admit I didn't see the other shoe in 2008, but are people searching for it now? What is it? The things we are discussing aren't enough to cause another Great Recession.

 

[Student100]

"House odds" and programmed trading have reduced "investment" to "buy and hold," pay capital gains on the integrated market inflation, and hope that it exceeds interest on savings (no brainer right now), and hope that that covers inflation of property taxes, utilities, goods and services through retirement.

I don't think buy and hold is really even a viable strategy without doing some hedging using options for short term investments. I think put's and hold would be a very viable <1 year strategy at the moment, the entire market outlook is negative (China's government coerced market, Fed always teetering about raising rates, etc)

Obviously if you have 15 years, the buy and hold always trumps everything else when investing in good value companies.

 

[mheslep]

They can't be completely rational because at least in the case of interest rates, the effect is preceding the cause.

Don't forget the time value of money. The market works by attempting to price in today what it expects will be the value in the future, after the cause. As V50 stated, we know that part of the attempt is always psychological and part of is based on economics, but we can't know exactly which is which.

 

[jtbell]

Obviously if you have 15 years, the buy and hold always trumps everything else when investing in good value companies.

Or simply invest in a broadly-based index fund and don't try to guess "good value." During my entire working career after grad school, I've put 50% of my retirement-plan contributions into a fund which is not a total stock market index fund but behaves pretty much like one, at least during the last decade or two. (It's currently about 70% US and 30% non-US stock.) The other 50% has gone into a stable-value fund that guarantees at least 3% interest and usually delivers more; right now it's giving me about 4%. Here's the result (don't ask me for the vertical scale; it's not an obvious unit):

Four data points per year. The current dip, so far, is about the same as the one in summer 2011, during the US debt-ceiling crisis. That dip was erased by the end of that year.

 

[Student100]

Or simply invest in a broadly-based index fund and don't try to guess "good value." During my entire working career after grad school, I've put 50% of my retirement-plan contributions into a fund which is not a total stock market index fund but behaves pretty much like one, at least during the last decade or two. (It's currently about 70% US and 30% non-US stock.) The other 50% has gone into a stable-value fund that guarantees at least 3% interest and usually delivers more; right now my account is giving about 4%. Here's the result (don't ask me for the vertical scale; it's not an obvious unit):

View attachment 88304

Four data points per year. The current dip, so far, is about the same as the one in summer 2011, during the US debt-ceiling crisis. That dip was erased by the end of that year.

I don't think there's a lot of guessing in picking good valued value companies.You look at the company, and you look at the stock price and determine if it makes any sense. Generally it does. Then look at the future of the company, possible product pipelines/restructuring etc and determine if it would be a good investment. There's no reason to get into the voodoo that is "technical" or even most of "fundamental" investing to see a good investment.

I personally prefer dividend stocks, and reinvest the dividends for no commission. It's generally a win/win. Over the last 5ish years, I've managed a little over 13%. Not to bad, but not great. The vanguard500 saw about 16% in the same period. So I guess I'm not doing as well as index funds. The one benefit I do have over pure index funds however is options trading, which I've just started to get into. I'm curious if I'll be able to average closer to the index this way. It also opens up avenues to make money even when the market is in a correction, or recession, for more risk. I also understand that a risk adjusted portfolio can never beat the index, and my real risk adjusted return rate is probably lower than 13%.

I guess more than anything I like having control, and it's "fun" to me.

Index funds are great over 15-30 years for people who don't want to be forced to micromanage their own retirement accounts. They have lower fee's than actively managed funds and generally perform only slightly below the index's average rate of return. Actively managed funds are better in the short term, but due to the higher fee's, not many can maintain benchmark levels over longer stretches of time.

I don't understand why you'd have 50% in a fund that guarantees at least 3%, inflation would basically wipe out any return at the minimum value. If they're constantly paying higher rates (it would need to be much higher) then it could make sense to me. That or you are close to retirement and can't deal with volatility as much. Otherwise, just putting it into your low fee index fund would make more sense to me.

 

[Vanadium 50]

I think put's and hold would be a very viable <1 year strategy at the moment, the entire market outlook is negative

The market works by attempting to price in today what it expects will be the value in the future,

Student, this is a very important point. The consensus negative market outlook is already priced in. A put and hold strategy works if the market outlook is not just negative - but if is more negative than the present consensus.

There are essentially three ways to make money in the stock market:

1. Take advantage of dividends and long-term market gains of the market as a whole.
   
2. Take advantage of dividends and long-term market gains of individual stocks.
   
3. Time an individual stock or the market as a whole and buy when it is underpriced and sell when it is overpriced.

A few comments. One is that Strategy #1 is not the same as buying and holding the individual stocks that make up an index. Unprofitable companies are dropped and profitable ones added. Today Apple is a member of the DJIA, and the Pacific Mail Steamship Company is not. So there is a reason for prices to increase - it's not just magic.

Strategy 2 has a large number of followers - indeed, for many years, that was the way people invested. The problem with #2 is that you are taking on more risk than a diversified fund, and rarely are the returns enough to compensate you for this additional risk. (In the interest of full disclosure, 8.5% of my portfolio is in individual stocks) You can make a fortune if you invest in the next Apple at the right time. Or lose a fortune on the next Pets.com or Polaroid.

Strategy 3 on a short term basis looks to me a lot like gambling. One a long term basis, it works if you can buy a stock that you have reason to do better than the consensus (or sell it when you have reason to believe it will do worse). I have done OK here (again, 8.5% of of my portfolio is in individual stocks), mostly when I have reason to believe that the company's management is better or worse than the consensus. But it takes a lot of work. If you have $10,000 and manage to get a yield of 4% over the market - something very, very good - by studying stocks for an hour or two a week, you're making minimum wage or less on this.