Summary
In some respects, day three of 2005 may have been the worst one yet for the stock market. One thing for sure: day three made day four more important!
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But "it's only a little profit-taking," say the usual suspects on Tout TV and similar places. But if you think about, taken in a highly literal sense, "profit-taking" is a bearish assessment on the market, isn't it? After all, the folks taking the profits are making a judgment that at that particular point in time, what they are selling is overvalued.
Although 2005 is only three trading days old, there is something else creeping into the picture, something you might think about if you wish to challenge the mantra, "it's only a little..." Three trading sessions into the year, and the Russell 2000 is down 5.4%!
Of course, the Russell was up a very solid 17.1% in 2004 (excluding dividends), the clear star among the seven issues comprising my market tracking group. (Doing well but still in a rather distant second place was the NYSE Composite. It was up 12.6%.) But in a mere three days, the Russell 2000 has given back almost 32% of last year's gain.
And here's another measurement of the Lord giveth and taketh away variety. From its close on election day (11/2) through 12/31, the Russell 2000 rose 11.5%. Thus, about 67% of the Russell's full-year gain came during this two-month, post-election period. In three trading days in 2005, the Russell has given back a very substantial 47% of its post-election run.
Here's a look at the entire tracking group for 2005, through yesterday's close.
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SELECTED STOCK-MARKET RETURNS
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Change
01/05 12/31 ------------
2005 2004 01/05 12/31
Close Close Only -01/05
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DJIA 10598 10867 -0.3% -1.7%
S&P 500 1184 1218 -0.4% -2.3%
NYSE Comp. 7056 7268 -0.5% -2.7%
Wil. 5000 11633 12024 -0.6% -2.8%
NASDAQ 100 1564 1635 -0.5% -3.5%
Value Line 386 406 -1.2% -4.5%
Russ. 2000 617 654 -1.7% -5.4%
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Average -0.7% -3.3%
Median -0.5% -2.8%
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A sinking spell or two notwithstanding, many of the bellwether measures were able to stay in positive territory for much of yesterday's session. As the afternoon progressed, however, they gradually slipped into the red, with all of the tracking group's components ending the day with a loss, the overall group with an average loss of 0.7%. Again, breadth was lousy. There were over 2,000 NYSE declines, on volume once more exceeding two billion shares.
Therefore, thus far, 2005 has begun the way I thought it might, as opined in material published late last year. All this makes 2005's trading day number four just that much more important.
So, let's see what today brings. But if it should be a continuation of days one through three, it heightens the chance that something worse (maybe much worse?) than what CNBC, et al are talking about is unfolding.
"Profit-taking" (deleveraging) in the absence of size bids to take the other side of the trade can be a _ _ _ _ _ (fill in the "B" word)!
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