Big bottom, big bottom. Talk about mud flaps, my market's got 'em. Big bottom drive me out of my mind. How can I leave this behind?
SAN FRANCISCO -- After
Tuesday's madness, the talk among Wall Street professionals was about bottoms -- the most prominent being the bottom of the
decline. But there was also plenty of talk regarding the need to see the bottom of a bar glass (or two, or three) following one of the wildest trading days ever.
For those just tuning in, shortly after 1 p.m. EDT, both the Comp and
Dow Jones Industrial Average
were down more than 500 points. For the Nasdaq, the dip to as low as 3649.11 represented a harrowing intraday decline of more than 13% and had the index nearly 30% off its all-time closing best of 5048.62. That both averages -- notably the Comp -- rallied sharply from those midday lows brought cheer to most market players and raised hopes the worst has passed.
"When the bids disappear and it's hard to get a market maker on the phone -- ostensibly because they're on eight other phone calls but they're actually hiding under the desks -- that's the moment of peak intensity," said John Bollinger, president of
. "It may not mark the final low, but gives a reference point going forward for all further events. It is a key, important point," he said, suggesting such a moment occurred midday Tuesday.
Bollinger also noted the
CBOE Market Volatility Index
spiked to as high as 35.43 before retreating to close up 8.7% at 27.90.
More than the absolute levels, the fact the VIX traded roughly 50% above its 50-day moving average of 25.21 is "another piece of confirmation suggesting today was a capitulation low," the technician said. Such spikes occur "only when the psychological juices really get going and there's an open bid for puts."
That the VIX closed so far off its intraday heights further suggests the capitulation has occurred, he added.
Other market players were taking solace in the hope the declines would convince the
its campaign to slow the economy by targeting the stock market is working.
"Has the wealth effect disappeared? You bet your..." quipped one market player Tuesday afternoon, shortly before market averages hit their nadir. "Maybe the Fed won't raise rates anymore."
First, I want to apologize for whatever credence I've given -- even half-jokingly -- to the idea the Fed is
irrelevant. Second, it should be pointed out that
has said the Fed isn't targeting stock prices, although I bet he's been pleased by the action since the last rate hike on March 21. (Yes, tech stocks rallied that day and for a few more thereafter, but have swooned since.) Third, the economy keeps barreling forward -- meaning the Fed is very likely to continue tightening when it meets on May 16. (Still, the talk of an intermeeting rate hike or more beyond the May meeting has subsided.)
Meanwhile, the overriding belief on Wall Street is the market will continue to rally in the coming days -- led by the tech-suppressed Nasdaq -- but soon will face a retest of Tuesday's lows. How it fares on the test will determine whether the recent dip was another great "buying opportunity" or if Tuesday's bounce will prove to be the best, last chance for those who haven't at least trimmed down their portfolios.
The market's track record over the past five years (or so), plus the individual investor's continued faith in stocks and desire to own them, has most market players convinced the more pleasant scenario will win out.
But Fred Wynia, technical analyst at
in Los Angeles, isn't so sure.
When Japan's infamous bubble market of the 1980s peaked out, "people stopped playing the rallies and started selling into the rallies," Wynia recalls. "I think the same thing will happen here."
may not fall as steeply from its heights as did the
, but "you're going to have a lot of people hurt," he said.
Admittedly, I spoke with the technician closer to the market's bottom Tuesday than its recovery high, but he nonetheless seemed convinced the action has been disturbing enough to prompt a shift -- from greed to fear -- in the market's psychology.
"The correction was so severe -- anyone concentrated in tech has been annihilated," Wynia said. "If you're pretty fully margined, you've got a problem."
Indeed, margin players have problems, and fear has entered the psyche of some market participants for the first time in a long time.
But judging by the very unscientific study I conducted when I was getting lunch at a favorite nearby cafe shortly after Tuesday's close, greed is far from dead (one of the quirks of being a West Coast-based market reporter is having to eat lunch around 5 p.m. EDT).
"A lot of people made money today," declared one fellow who'd joined the impromptu conversation I was having with some other customers and the folks behind the counter.
Granted, one off-the-cuff comment from one individual falls
just a bit
shy of meeting the parameters of scientific method. But I found the remark instructive, because despite all the talk about margin calls and the Nasdaq's near meltdown, I sensed that single idea was what everybody else in the group took away from the encounter (along with the BLTs and turkey sandwiches, etc).
The dream lives. The bogeyman be damned.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at