Did Monday Action Signal A (Temporary) Bottom?

Monday’s big drop in U.S. stocks was unusual in this period of frequent market routs–and unusual in an important way.

Even as the market has tumbled day after day, investors haven’t seen a big 90% down day of the kind that signals a (perhaps temporary) capitulation and a possible bottom.

The advance/decline ratio on the stocks in the Standard & Poor’s 100, even on down days, would show 60 stocks down and 40 up or 54 down and 46 up.

Hardly a ratio that signaled investors throwing up their hands.

But on Monday they did. In that day’s trading 94 stocks out of the S&P 100 fell and only 6 advanced. That’s the kind of ratio that can signal a capitulation and the kind of selling climax that often clears the way for the market to move higher.

In the current circumstances I think any move higher is likely to be temporary and unlikely to be strong enough to put an end to the bear market. But Monday’s action is what I’d expect to see before a bounce. Maybe on tomorrow’s news from the Federal Reserve on interest rates.

Today, as of 2:45 p.m. New York time the Standard & Poor’s 500 was down 0.15% but the Dow Jones Industrial Average was ahead 0.16%. The NASDAQ Composite was up 0.25% and the small cap Russell 2000 index was higher by 0.32%.

The Financial Select Sector SPDR ETF (XLF) was down 0.56% and the Energy Select Sector SPDR ETF (XLE) was lower by 2.44%. That left the heavy lifting to the Technology Select Sector SPDR ETF (XLK), which gained 0.60%.

The iShares MSCI Emerging Markets ETF (EEM) was up 0.73%.