Sharp selloff? Retest? Fear index up to 25?
What's it going to take to get rid of these sellers?
This is one of those good old-fashioned selloffs that reeks of October, just a blast down to where the core of the holdings are.
We have seen these before. They are frightening. No one has enough cash. The confidence will be shaken. We get to where the fear is such that you can taste it.
What are we watching for to see if we can bottom?
First, we need to see the Volatility Index go to 25 and then stop. Thanks to our resident VIX expert, Mark Sebastian, we know in the calm of day, reached when we had that 500-point up session that seems oh so long ago, that Sebastian said we would have to have a vicious retest --and here we are. He said that VIX hit close to thirty last time. We need to see the VIX make a top at 25 while the market still keeps going down.
Second, we need to see if the market reacts at all to upgrades or better-than-expected quarters.
Third, we have to see if we exceed the European declines. If we do, that may be the right moment to buy.
But buy what?
Fourth, and this is the tough one, we need to begin to hear that employment is in the rearview mirror and that housing and autos are bleeding into the real economy.
I still think there aren't nearly enough people who share my view that it isn't a trade war but a cold war.
There aren't enough people who think that the Fed is doing the wrong thing. I keep hearing people who are sanguine.
They are mistaken and ill-advised. We have had troubles ever since, it is clear -- at least to me -- that the president isn't negotiating with the Chinese. He's trying to crush them, which isn't easy. It wasn't easy to crush the Soviets.
People don't realize that the president picked an old money hawk to be Fed chief. The apologists are everywhere. We won't want doomsayers. But we don't want apologists.
So let it come in.
No heroes until we see that first VIX level and we see the U.S. market trade lower than Europe. If we get a bounce there, then you might want to go for it.
But take your time.
It's not a spillover from the pajama traders, it is real, aided by the fiscal year of the mutual funds and their frantic desire to sell at any cost.
Don't let the cost be you.