We May be Entering the “Sell Everything” Stage in this Market

Selling panics are usually the prelude to big buying opportunities.

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Market Update

Stocks are being sold aggressively, even as the CNN Greed/Fear Index is at an Extreme Fear reading of 14. That puts us in that special place which I call the “sell everything” stage. When traders get that “sell everything” feeling, it’s a good time to step aside and let the market sort things out. The silver lining is that selling panics are usually the prelude to buying opportunities. In other words, keep your powder dray and wait patiently as the bargain basement will eventually open its doors.

It’s one thing after another for the stock market with the New York Stock Exchange Advance Decline line (NYAD) finally breaking below its 50-day moving average signaling that the selling is reaching a point where the odds of picking winners is falling rapidly. This, of course, means that it’s time to pull back our horns and let this market sort itself out.

I use NYAD because by measuring the market’s breadth, it filters out the noise caused by heavily weighted stocks in the major indices. A rising NYAD signifies a healthier market than a falling NYAD. It’s most bullish when it makes a new high, as it implies that upside momentum is ramping up. That said, the break below its 50-day moving average suggests that, at least in the short term, the market is about to at the very least get more volatile.

Consider following on the NYAD chart this morning:

• The line is decidedly below its 50-day moving average;

• The RSI is just below 50 which means that an oversold level of 30, and a possible turnaround of some sort is still some time away;

• The CBOE Volatility Index (VIX) is rising rapidly above the 20 level. That signals that market makers are now selling futures aggressively to hedge their books as the market buys more put options. The combination is accelerating the selling.

Meanwhile, the U.S. Ten Year Note yield (TNX) is in freefall, having broken aggressively below the 4.5% area and heading for a test of 4%. Unfortunately, bond yields are getting very extended here with the RSI nearing 30. This sets the market up for a reversal in yields which could make things worse for stocks.

And if things weren’t difficult enough to manage, Bitcoin (BTC) has broken down decisively. In fact, the selloff has all the earmarks of a real panic, especially the break below $90,000 and the equally important fall below the lower Bollinger Band coupled with the RSI reading well below 30. In other words, this could be the prelude to a potential buying opportunity once things settle down.

Bitcoin continues its messy trading pattern. The silver lining is that the 200-day moving average has not been fully breached, which offers some hope to the battered bulls. I’m keeping a close eye on BTC, but right now, from a trading standpoint, it’s not a good place to gamble; especially given the breakdown in the OBV line which means that the selling hasn’t stopped.

Given that we are entering the Sell Everything stage of the pullback, I don’t have a new pick this morning. Of course, my shopping list continues to grow, which means I’ll have new picks when conditions improve. That said, our ESP portfolio has three open positions which are holding their own quite nicely.

Thanks to everyone for your ongoing support. I really appreciate it.

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