Stock Market Commentary for Monday, April 18, 2005

[Some minor changes in the actual column since Saturday]

Finally on Friday we got a true heavy sell-off, with a big point decline for Nasdaq (down 38.56 points), on very heavy volume, and with strongly negative breadth.  Still, despite all the chatter, this was more of a technical decline that based on economic and business fundamentals.  With Nasdaq falling below technical support on Thursday and lots of hot money freed up from the sell-off of oil, shorting Nasdaq was an obvious target.

The monthly Empire State Manufacturing Survey was rather gloomy, but was still showing a little growth.  There does tend to be a lot of volatility in these reports, so getting excited or depressed by one month of data is not a realistic approach to judging longer-term economic and business growth.

Sure, there are some real concerns about the true pace of the economic recovery, but the actions of traders and speculators, with all the hot money floating around, can dramatically incite volatility out of all proportion to economic and business reality.  Is "business spending waning"?  On a short-term basis that may be true, but true investors are more concerned with longer-term trends than near-term fluctuations.

The open question is whether this sell-off was actually strong enough to mark a "capitulation", the kind that marks a near-term bottom and signals a reversal.  It might be, but sometimes there is a series of sharp sell-offs before the corner is finally turned.

In any case, for true investors there is nothing to be concerned about.  This kind of volatility is a fact of life, but is not an indicator for the long-term trend.

Nasdaq trading volume was very heavy (2.39 billion shares), and breadth was very strongly negative, with 3.18 losers for each gainer.  This was a heavy sell-off.

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-- Jack Krupansky