Tuesday, February 27, 2007

Stock Market Decline

So the big news in the markets was the decline today. Let's recap the pain:

  • The DJIA closed down 416.02 points, or 3.6%, to finish the day at 12,216.24
  • This was the worst point decline since the index fell 684.81 points, or 7.3% on Sept. 17, the first trading day after the September 11th attacks
  • This was the worst percentage decline since the Dow fell 3.6% March 24, 2003, not long after the beginning of the Iraq war
  • The NASDAQ was down 96.99 points, or 3.86%
  • The S&P 500 was down 50.33 points, or 3.47%
  • The drop seems to have been sparked by a 9% overnight drop in the Chinese stock market that spooked people before trading opened in the US

I thought it was interesting to read that a computer glitch was partly responsible for some of the market decline. Apparently the DJIA wasn't being calculated correctly during the day due to heavy trading volume, and when they switched to a backup computer to do the calculation, the result was an immediate 200 point drop in the index, which no doubt spooked investors even further.

For those of you who missed it, I wrote about how my unofficial market barometer was pointing towards a correction a month or so ago, but this is not an "I told you so" post. I am still an agnostic on the near term movements of the market. I don't know if today's trading signals a major correction is in the works, or if it is a great buying opportunity. I can tell you that I'm glad that my 401(k) rollover didn't go into effect yet, because I will most likely be buying into my funds at lower prices sometime next week.

Anyway, I'm happy when prices go down, and if your investment outlook is 10 years long, I think you should be happy too.

If you do pick individual stocks, now might be a good time to have a watch list of stocks that you will buy if they become undervalued. Allthough, I think it will take a lot more than a day like today to create some real buying opportunities.

In other words, don't worry unless you're retired and in the process of selling your investments.

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