SAN FRANCISCO -- When I heard reports Thursday morning about the carnage -- both the actual kind in the Middle East and the financial kind on Wall Street -- my first thought was
I shoulda stayed in bed
. Nothing that transpired afterward changed that feeling. In fact, things only got worse as the day progressed, especially for those long just about anything other than oil stocks and U.S. Treasury bonds.
Then again, journalists live for days like these. Forgive us, but we do.
Where to begin? You know the score: Oil prices rose 8% to more than $36 a barrel following a frightening escalation of fighting between the Israelis and Palestinians, plus a terrorist attack on a U.S. Navy ship in Yemen. In reaction, the
Dow Industrial Average
fell 3.6%, the
lost 3% and the
The session left the Dow just 34.58 points above the "psychologically important" 10,000 level, and the Comp at 3074.68, its lowest close of 2000.
The overwhelming consensus among market players and pundits was that oil's spike caused the market's latest woes. However, Jim Volk, co-director of institutional trading at
in Portland, Ore., suggested oil is "just the excuse
to sell stocks because of valuations."
Almost regardless, the point is that oil was behind the selling, a point I tried to make with
during a friendly debate on the
Columnist Conversation earlier Thursday. I can't dwell more on that now, but will address it in a forthcoming piece, where I'll revisit my
October Surprise theory from two weeks ago.
But back to the issue at hand: The talk among traders is that the Dow will breach 10,000 tomorrow -- at least intraday. One trader quipped that market-resistance levels are like potential dates: "If they don't meet your standards, lower them."
Locker-room humor notwithstanding, the open question is whether the Dow trading with four digits:
Matters at all;
Sparks an avalanche of selling as retail investors, who thought they were "safe" because they didn't own tech or who have been under sedation, awaken to what's happening; or
Compels buyers to step up.
I'm going with choice C, if only because tomorrow is Friday the 13th and another market shellacking would just make life too easy on the headline writers and TV producers (who are all doomed to
have it easy). On a less ephemeral note,
both closed solidly positive amid the turmoil on Thursday. It is that kind of mega-cap tech leadership that will eventually kick this market out of the funk house. Furthermore, while trading volumes were high Thursday, they weren't as high as they were on Wednesday, suggesting Wednesday might have been the market's low in terms of emotion, if not actual price.
For my money (you can't be too soon), John Bollinger, president of
in Manhattan Beach, Calif., summed it up best when he described the current environment as containing "all the ingredients of a bottom, but the cake hasn't been baked yet."
That is, the eggs, milk, flour, sugar and vanilla are in the mixing bowl, but the batter hasn't been put in a (greased) pan and into a preheated oven.
Bollinger noted that recent data showing an increase in put buying suggests investors are frightened, even if they're talking a different talk, he said. In another indication of the rising anxiety level among investors, the
Chicago Board Options Exchange Market Volatility Index
, which measures put buying of S&P 100 options, rose 13.1% Thursday to its highest level since May 4.
Still, "prices can go lower in the teeth of such an environment," Bollinger cautioned, suggesting that a positive reversal day -- meaning a session with lower lows and higher highs than the previous trading day -- accompanied by strong volume is necessary before investors can think about icing that cake, much less eating it.
But for those of you wise or lucky enough to sock away some batter for days like these, the time to start thinking about what you want to buy is at hand, he said. The venerable technician has begun the process of searching for candidates.
Starting with nearly the entire universe of publicly traded stocks, Bollinger screened for stocks down 50% or more this year but which hadn't set a new low in the last month. That narrowed the list down to 300 stocks. From there, he looked for stocks with increasing trading volume and better-than-average relative strength, which narrowed the field to 111.
From those 111, Bollinger intends to find a "bounce list" of stocks by searching for those which pass a "financial distress" test and have a trend of positive, and rising, earning estimates.
But the point is, Bollinger has yet to make those final cuts or subsequent purchases, another indication the bear market isn't quite ready for the dessert course -- just yet.
As originally posted, this story contained an error. Please see
Corrections and Clarifications.
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 invites you to send your feedback to
Aaron L. Task.