Sam Collins

Be Prepared to Buy on This Pullback

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With some positive economic news at its back, the Dow Jones Industrial Average (DJI) opened strong yesterday. Within minutes, the key index was ahead by more than 60 points. And then the advanced billings that September is usually a tough month for stocks turned the tide and, led by the financial stocks, the market suffered its worst day since mid-August.

With almost 95% of the S&P 500 (SPX) down, investors ignored the strong economic reports.

The ISM manufacturing index for August came in at 52.9, which not only crushed analysts' forecasts of 50.5, but it was the first time since January 2008 that the index scored above 50. And new orders increased to 64.9, an increase of almost 10%.

Pending home sales for July were expected to increase by about 1.5%, and instead increased by 3.2% for the sixth-consecutive month of increases.

And to top off the good news, the Wall Street Journal said that the International Monetary Fund (IMF) forecasts a global economic expansion of almost 3% in 2010. This was an increase over a prior estimated expansion of 2.5%.

Most of the heavy selling was centered on the financial sector, apparently because it was the financials that led the August rally.

AIG (AIG) fell 21%, ETrade Financial Corp. (ETFC) was off almost 15%, and Citigroup (C), which gained 58% in August, lost 9.2%.

Of the Dow 30, all but one lost, with American Express (AXP) down more than 5%, Bank of America (BAC) off more than 6%, and JPMorgan (JPM) down 4%. The only Dow winner was Wal-Mart (WMT) with a fractional gain.