Maybe it was just investors and traders having second thoughts about selling stocks on a day when the economy delivered a surprisingly strong jobs report for February. After all, isn’t stronger economic growth a good thing for company revenue and earnings?
Maybe it was just the normal desire not to be too long or too short going into a weekend.
Maybe some of the technicians saw something that yelled “REVERSE!” If so I don’t yet see it. The NASDAQ Composite closed the day at 12920. Earlier in this drop it had sliced through the 20-day Moving average at 13609 and the 50-day a 13340 like a warm knife through butter. The 200-day moving average, the next big support isn’t until 11618. Way, way lower than where we closed today.
My tentative explanation?
I’ve got my eyes on market leverage, specifically margin debt. We went into this downturn with a historically high level of margin debt. Lots of investors and traders had borrowed on their portfolio holdings to raise cash to buy more stock.
Yesterday’s action with its heavy selling of stocks where investors and traders had big paper profits looked to me like “source of funds” selling. I didn’t see panic liquidations of riskier positions. Some of the biggest investors in the market’s riskier stocks, Tesla (TSLA),for example, were buying on the dip. (If we can believe what they were saying to financial organs.) The CBOE S&P 500 Volatility Index (VIX) climbed just 7.39% on the day on March 4. I don’t see signs there of a big jump in market-wide bearishness. Instead what this looked like to me is that investors and traders were selling everything where they had big profits so they could cover any potential margin calls on their portfolios. They didn’t want to be forced to liquidate into a down market because 1) that always produces bigger losses, and 2) they still believe in the risky stocks in their portfolios, especially the Big Tech stocks that hardly budged lower yesterday, and didn’t want to sell them. In this explanation, the end of the selling today came as investors and traders figured they’d raised enough cash so that they were comfortable ending their selling. And with an end to that way of thinking, they began to look around for bargains in the very stocks that they’d liquidated yesterday. And not just in the tech sector either. Yesterday copper and copper stocks moved down strongly. Investors had big profits in these stocks and they sold to take Southern Copper (SCCO) and First Quantum Minerals (FQVLF) down 7.55% and 7.46%, respectively. Today shares of Southern Copper were up 3.28% at the close and First Quantum Minerals ended the day ahead 3.46%.
At least that’s the explanation that makes the most sense to me at 5 p.m. on a Friday afternoon.
