10/16/2014

Ok. So yesterday was quite the day. So bad in fact that when the Dow closed with a 173 point loss we regarded it as a victory. And things today don’t look much better. Domestically the pre-market is trading down 1.49% and foreign markets haven’t done much better. France is down 2.27% and Spain is even lower at 3.83%. When you think about it, this was pretty explicable. We’ve had weak growth, a struggling eurozone, and a collapse of oil prices. But what this is doing is creating a scenario for capitulation, an economic strategy when an investor chooses to give up any previous gains in an effort to get out of the market and move into some less risky investments. This is traditionally signaled by high volumes and sharp declines.

So let’s look at this. High volumes? Check. Sharp declines? Check. People getting out of risky investments? Well, just look at Netflix. The stock absolutely crashed, loosing 23% of its value in after market trading. It released its earning and demonstrated signs of slowing growth. That coupled with the fact that HBO just entered their space probably didn’t help much. The collapse also affected other online players. Companies like Google and Facebook also took hits just because they are guilty by association.

But, as always there is a silver lining. And that is the Russell 2000. This year it has pretty much been the leading proxy for the market’s moves. It goes up, we go up. It goes down, we go down. And yesterday was a good day for the index, rising 1.02%, and giving the bulls some hope.