Another incredibly exciting day in the market as stocks crater out of the gate, recover some of those losses and then plunge even lower. Is Ebola really scaring this market that much? The recession in Europe and slowing growth globally isn't anything new. Is it the Alibaba Top? I don't think this sell off has much of an excuse. And that is what has me concerned through this sell-off.
After hitting new record highs investors are in a sell first ask questions later type mode. We are nearing a waterfall type capitulation type move. Stocks will bottom at some point, the question is when.
I think we are very close to a reversal. The bond market has been soaring, and today's action in the $TLT is telling of a panic condition. We are still in a low interest rate environment, conducive to a rally in risk assets. The real issue I see here is selling that goes far beyond what we've been accustomed to. There is liquidations going on, margin calls, and perhaps events behind the scenes that we may become aware of later on.
I think funds are getting blown up and forced to sell at any price. That is what this action feels like to me. Forced liquidations. At some point, possibly as soon as today, the market will reverse course, the calm under current will return, and stock prices will revert back to that slow steady upward slope.
We haven't seen this type of selling since 2011 and in a way its welcome. Earlier this year it seemed no one thought the market could pull back. Today no one thinks the market will go back up. Since 2009 it has gone back up. Each dip has been a great buying opportunity. Will this pull back be a great buying opportunity? Or are we in the early stages of a 50-75% market crash?
Lets not be naive and think the market is impervious to downside. But lets also understand that the Central Banks will not let the markets correct like they should. If anything this recent pull back will ignite even more stimulus and set stocks up for a move back to record levels.
While everyone is busy looking for the bottom to come out, I'll be looking for a few trades to capitalize on as this sell-off ends and stocks reverse course.