Heavy Selling Grips the Market as Stocks Close Near Lows

Sellers stormed the market as jobless claims rose and sovereign debt fears ravaged the market.  In addition, New York Attorney General Cuomo announced charges against a large bank sent fears throughout the financial sector.  Volume soared and the “fear index” VIX jumped nearly 21% showing traders are becoming more fearful.  Jobless claims jumped as more Americans than previously thought sought after government assistance.  To sum up the day’s action in its simplest terms is supply continues to outstrip demand and prices reflect the imbalance.

Today marked the end of the most recent rally attempt as it didn’t take too long for the market to take out last Friday’s lows.  What today taught us is you simply must wait for a follow-through day to get long a stock as it proves to err on the side of caution.  Not to mention the current correction is only in its third week and isn’t long enough to produce monster stocks.

While we might be in oversold territory we may very well see our market lower very soon.  Often times, like we’ve mentioned here before oversold and overbought conditions can last much longer than you may think.  At the moment any measure of how much the market is oversold is near or at extreme levels.  But, if you look at the VIX mentioned above its 20% move today looks like it will explode higher given the current pattern (not shown).  The path of least resistance is lower and despite oversold conditions it appears it will last much longer.

Today felt much like October of 2008 when selling became unrelenting.  Now, today we aren’t suggesting we are going to see a 2008 style sell-off but the look and feel of today’s sell off certainly brought back memories.  The last thing you want to do is to go out and short anything and everything.  This is precisely why we are disciplined traders and not cowboys.  It is why we’ll be here for the long haul and continue to produce gains from this market.

Emerging markets are beginning to spook investors as Greece and Spain continue to weigh on the global market.  These fears certainly contributed to the selling pressure today and most likely will continue until these countries are able to cut down their debt.  The United States is under the same fear, although not at the levels of some European Countries, but near unacceptable levels.  Here in the United States we have experienced debt loads like this before and have been able to emerge glorious.  We will be able to emerge victorious once again.

This market remains in a correction and unlike Jim Cramer we will not try to pick a bottom.  Respect the trend.