Art Cashin Made An Important Observation About Monday's Late Sell-Off

Art cashinUBSArt Cashin

During the final hour of trading on Monday,
stocks sold off sharply. After spending much of the day in the green, the Dow closed down 77 points or 0.4% on the day.

So, have things turned for the stock market? Have we seen the top?

Not necessarily.

Here’s UBS’s Art Cashin’s post-mortem:

As the final hour began, traders were even more surprised to see the selling imbalance had swollen to over $US1 billion. That would have an impact and prices began to melt.

The anticipatory selling turned more aggressive, taking the Dow down through 16,000 and the S&P below 1800. There was a relief blip right before the bell that allowed both averages to close above those landmark levels.

While the $US1 billion to sell was a clear and palpable motivator, a look under the hood shows it’s still a market of stocks. The Dow fell 79 points. MMM contributed over 38 of those points. IBM chipped in 15 and Travellers nearly 11. That’s three stocks providing 64 of the 79 lost points. Micro versus macro, indeed.

This is important because the sell-off can’t be characterised as indiscriminate panic. Rather, it just reflects biases created by the nature of the indexes, which are often driven by the idiosyncratic moves of the larger cap companies.

All of this reflects the falling correlations among financial assets, a key market theme in 2013.

“That is a natural response as the nadir of the crisis recedes further into the past and normality returns to markets that can respond to their own ‘fundamentals’ rather than one common risk-on-risk-off dynamic,” said Nomura on Monday. “That means that asset markets can start to diverge.”

“Absolute correlation among asset classes continues to fall rapidly showing a smaller magnitude of co-movement between asset classes, indicative of a normalisation.”

Here’s a look at the S&P 500 yesterday.

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