In the beginning, the stars were aligned for a rally, perhaps a substantive one. Gold was falling, the dollar was rallying and traders were encouraged by a string of positive comments in recent days from Wall Street's so-called major strategists, including Barton Biggs, Abby Cohen, Thomas McManus, Byron Wien and Steve Galbraith.
Traders were further encouraged by early gains in shares of
, which lowered its revenue guidance but not its earnings forecast, as many had feared.
Then havoc struck ... or at least the realization that the outlook remains murky for the economy and for corporate profits, and that the geopolitical situation still is tenuous. Also, some observed that several erstwhile gurus have recent track records that are spotty, to be kind.
(For example, Morgan Stanley's chief global strategist Barton Biggs, who last week forecast the U.S. stock market was bottoming, was bearish for much of the past decade, including during the boom years. Conversely, Goldman Sachs' chief investment strategist Abby Cohen never really relinquished the bullishness that made her famous during the late 1990s, despite the ongoing bear market.)
Once as high as 9758.80 the
Dow Jones Industrial Average
closed down 1.3% to 9517.26. Similarly, the
shed 1.7% to 1013.60 vs. its earlier best of 1039.04, while the
lost 2.2% to 1497.18 after trading as high as 1547.50.
Notably, the S&P 500 and Nasdaq Composite traded right near the intraday lows reached Friday of 1012.45 and 1495.81, respectively. Perhaps the only salvation for bulls today was that the averages did not breach those levels -- the S&P traded as low as 1013.94 and the Comp as low as 1496.66 intraday today. The most hopeful observers suggested today's action could be viewed as what technicians call a "double bottom," even if it's only of the near-term variety.
Still, this was yet another broad defeat for the optimists, bordering on a rout. Declining stocks bested advancers by 2 to 1 in Big Board trading, where down volume totaled 74% of the 1.4 billion shares exchanged. Losers also led by about 2 to 1 in over-the-counter trading, where down volume totaled 82.6% of the 1.45 billion shares and new 52-week lows swamped new highs by 201 to 54.
But more harmful than the declines by market proxies and the market internals was the psychological impact of the market's inability (yet again) to sustain its early gains.
"It's a continuation of what we've seen recently -- investors are nervous when stocks go up, because they've seen them pull back so often," said Joseph Stocke, chief investment officer for StoneRidge Investment Partners in Malvern, Pa. "There's a tendency to take some off the table before it pulls back. Investors get into certain modes and right now they are selling into strength."
StoneRidge, which manages about $800 million for institutional clients, doesn't have the luxury of heading for the sidelines and remains fully invested, Stocke said.
"We're still investing with a somewhat long-term time horizon, with the idea investor nervousness will gradually dissipate," he said. "We're not ourselves caught up in near-term concerns and feeling some might be overdone."
All the News Fit for a Selloff
Overdone and oversold are terms frequently heard these days, but those concepts and the notion stocks had 'already priced in the bad news' proved inaccurate yet again today. Several factors were cited for the market's reversal, in addition to the ongoing concerns about corporate profits, the economy, Blodgetgate, terrorism, etc.:
The market's midmorning peak seemed to coincide with news reports of the Senate's vote to approve a $450 billion increase in the U.S. debt limit to $6.4 trillion. Concerns about the budget have weighed on U.S. financial assets of late, although U.S. Treasuries rallied today as stocks and the dollar rescinded early gains.
Treasuries were further aided and stocks hampered by news of another suicide attack in Israel. The price of the benchmark 10-year note finished up 13/32 to 99 8/32, its yield falling to 4.97%, its first close below 5% since March 1.
General Electric failed to sustain an early move that took it as high as $30.45 and may have presaged the broader market's decline. GE closed down 1.8% at $29.40.
Finally, there was the psychological effect of extended losses in biotech stocks, paced by a 16.5% decline in Idec Pharmaceuticals . The firm reported a three-month delay in Medicare reimbursement for its new cancer drug, Zevalin. The Amex Biotech Index fell 8.1%.
"There's nothing but bad news
in biotech. There's no rest for the weary," said Stephen Massocca, president of Pacific Growth Equities, a San Francisco-based investment banking and brokerage firm, which specializes in emerging growth companies. "There's some real capitulation going on and the news is bad." In addition to Idec's woes, biotech investors are still reeling from
warning last week and rumors that
, which fell 7.3% today, will soon follow suit.
Of course, history has shown that prudent investors buy when others are throwing in the proverbial towel, as seems to be the case in biotech stocks.
"For people with a time horizon greater than the next two hours, it probably is a good time to buy and we're seeing long-term investors bid cautiously for stock," Massocca said. "The problem is you have this trader mentality out there
and people expect them to zoom tomorrow. It's not going to happen."
The downside of us becoming a "nation of day traders," as many claimed occurred in the 1990s, is that so-called investors have little patience for stocks that don't rally immediately, and certainly no tolerance for those that fall. Furthermore, investors who've survived and thrived in the past two-plus years have done so by selling into rallies and/or by being short stocks. Nothing that occurred today is likely to dissuade them from that path.
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.