Our Experts Weigh In After Thursday's Market Sell-off

Bob Bogda's picture

Thursday, May 6, 2010 - 5:42pm

by Bob Bogda

As I write this shortly after Thursday's market close, it wasn't clear how much -- if any -- of today's plunge could be attributed to human or computer error, or illiquid electronic trading systems for that matter.

The one thing we do know for sure: the Dow Jones Industrial Average fell by almost -1,000 points before recovering to close -347.80 points lower at 10520.32, down -3.2% on the day.

Much of the initial pressure stemmed from the escalating debt crisis in Europe. And that won't go away any time soon.

For traders and investors the big question, of course, is whether the recent three-day plunge in U.S. stocks represents a buying opportunity or a warning to stay clear. We asked some of the experts at StreetAuthority to weigh in with their initial reaction to this week's developments. Here's some of what they had to say.

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I am concerned, but not unnerved, by this week's market action and the residual effects of Europe's debt problems. I suspect there will be continued downward pressure as more cautious investors decide to hit the sidelines and more stop losses get set and triggered.

My hope is that this all happens in a more orderly manner than what we saw today. And I have already started looking for opportunities . . .

One of the things that happens during a dramatic downdraft is that the prices of closed-end funds (CEFs) drop more than their net asset values (NAVs). These temporary price-to-NAV imbalances can create oversized gains when they revert back to normal.

Also important, income stocks hold up fairly well in most market downturns. That was not as true in 2008. In 2008, we had the perfect storm. The credit crisis had companies preserving capital the only way they knew how -- by cutting or suspending dividends. And when the global recession took hold, an endless wave of cuts ensued. But today, despite the Euro woes, there are some very healthy economies out there and plenty with very strong balance sheets. We will have to be selective, but the upside potential for dividend growth is out there.

-- Amy Calistri
Chief Investment Strategist
Stock of the Month, The Daily Paycheck

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My systems are telling me there's a possibility the market could trend lower for the next couple weeks, although not necessarily precipitously lower. My data also indicate that stocks could rally late this month and continue strong into June.

I am not panicking, but I'm not buying right now, either. What I am doing is identifying stocks that I want to own and will consider buying as soon as the downtrend looks to be over. Unless you are a day-trader, I do not recommend going short right now, as an oversold bounce could occur at any time.

-- Mike Turner
Chief Trading Expert
Mastering the Markets

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They say that when the United States sneezes, the rest of the world catches a cold. Well, Greece isn't exactly the United States, but its virulent strain of debt flu has still sparked widespread fears of an epidemic. And that's the real risk. By itself, Greece is relatively inconsequential to the global economy. But if the sickness can't be quarantined, its larger (and weakened) neighbors will be threatened.

I broke into this business during the Asian financial crisis of 1997, when a seemingly innocent devaluation of Thailand's currency (baht) eventually brought Russia to its knees and shook the world. I'm not saying we're headed for a repeat performance, but there are enough similarities to remind us all that crippling financial woes can spread quickly and be tough to contain. I will be watching this situation vigilantly. But as long as U.S. economic data remains skewed to the positive, I view this panic-driven pullback as a buying opportunity for select funds.

-- Nathan Slaughter
Chief Investment Strategist
Market Advisor, The ETF Authority

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Instead of engaging in short-term speculation or following the herd, intelligent investors should endeavor to become owners of specific outstanding businesses. The successful investor's approach, thus, should be based not on what the overall market does or is doing, but rather on the individual opportunities it creates as excellent businesses become undervalued.

Today is a perfect example of that. This drop, like others before it, ultimately will -- if history is any guide -- become another buying opportunity. And it is not to be missed.

--Andy Obermueller
Chief Investment Strategist
Government-Driven Investing

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Bob Bogda does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.