It's really hard to say when the selling willl stop. Our economic system is so over-leveraged that when the selling gets serious and all these banks, brokers, trading houses and even individual traders that are leveraged anywhere from 4 to 60x actual captial are forced to liquidate positions in a hurry because they are getting margins calls; you end up getting a ton of people heading to the door at the same time.
We saw some of this today in the last hour of trading. Margins calls normally hit around 1pm eastern which is why you often see continuation down moves on big down days, longs being forced to sell, or final pushes higher in the last hour on big up days when the shorts are forced to buy in the last hour to cover underwater postions. Historically, days of a lot of forced selling end up being great buying opportunities for those willing to buy into market nose dives.
We are massively over-sold on a daily basis, over 80% of the S&P is trading below their 200dma. Historically, this is a buy signal for the market as a whole with average returns of 3-5% over the next 4-6 months. I personally like to use the 8 ema on the daily combined with a custom trend indicator to highlight possible entries for mid to long term investments. Right now we are significantly below the 8 ema on the S&P and the trend indicator is currenty reading -42. A reading of -50 is a strong sign that a bounce is close at hand.
A lot of individual company balance sheets look fantastic. AAPL, for example, is going to have $100 billion.....BILLION in cash and short term assets by the end of Q4 this year. However, if the market is faced with massive de-leverage these balance sheets could take big hits in short order due to a collapse in overall economic demand. If the global economy continues to slow, the price multiple applied to corporate earnings will also decline....meaning stocks go lower.
The whole world is over leveraged, we are a global house of cards economically. We didn't solve the problem of the 08/09 crash.....which was over-leveraged financials instruments lead by housing.....we just moved the leverage. We allowed the government to absorb some of it so the banks could re-leverage......and lend to small businesses and create jobs
......... and then the Fed pumped trillions of what is basically monopoly money into the market to artificially inflate asset prices.
All we have done is make the debt bubble larger. As it stands right now, the global economy is more leveraged than it was before the 08/09 crash.
So far all the ideas coming out of global leaders about solving this problem deal with.....wait for it.....more leverage. We are a long way away from a real long term solution. All we are really doing right now is looking for another short term solution to kick the down the road a little further.
It will be very interesting to see what the Fed has to say at their meeting on Tues/Wed becuase there really isn't a whole lot they can do at this point.
What I find most worrisome about todays trading is the action in the US financials, BAC specifically. These things died today....massive selling all day. BAC is trading like its going out of business, like Bear and Lehman did in the days leading up to their failures. If the selling pressure continues we could really be back to another "to big to fail" mess with BAC calling Uncle Sam for help.
If you are going to buy for the long term in this type of environment, be prepared for big swings, and stick to multinational dividend payers if you want to play it relatively safe. If you are willing wait out possibly large short term losses, you can look at high beta names with strong growth rates......stuff like VMW (which actually traded really well today given the market conditions, FFIV, AAPL, CRM.
ing do anything. We are really not in that deep of a ditch, its just that people keep 