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It wasn't about the Bank of Japan's lack of action to double down on negative rates. Yes, pre-market futures pointed down -0.7% on that news. Yet by 11am ET stocks were already back in the plus column.
Nor was it about GDP coming in below expectations at just +0.5%. Like above, those early losses were quickly turned into green arrows.
So if not falling for obvious fundamental reasons, then what was the cause?
Here is my theory. Most investors rely more on price action than fundamentals to form their investment decisions. If prices are going higher they feel more bullish. And vice versa.
This rally since mid-February has happened in the face of deteriorating fundamentals. Since prices keep going higher, investors keep ignoring the economic data. However, in the back of their minds they know that all is not well.
So in the final hour today it was like someone yelled "FIRE!" causing a lot of investors to run for the exits leading to the largest daily loss for the Dow in two months. That does not mean that they will continue to tumble from here. We certainly could retest 2100 again soon. However, I sense that once there is some downward momentum it could tumble to 2000 and beyond in a hurry.
Thus, I think prudent for everyone to consider profit taking strategies on long positions if this down leg does start to unfold.
Best,
Steve Reitmeister
Executive Vice President, Zacks Investment Research
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