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I was just about to "go to press" with Total Wealth yesterday when the selling suddenly accelerated. By the end of the day, the Dow was off 831 points, and the fear was palpable.
So let's focus immediately on what's happening.
First, the biggie: Will the selling continue?
Likely yes. Institutional traders came into the day very heavily leveraged, which means that they unloaded everything but the kitchen sink as a precaution against margin calls that could easily wipe them out.
How Deep Will It Get?
Unknown. That's a function of how fast the big traders can unload and how much debt they carry.
You've heard me say for a few weeks now that a good old-fashioned pipe cleaning is overdue, and that's what we're getting. But it's ultimately a good thing.
My guess, based on what I'm seeing and hearing from other traders around the world right now, is about 5% to 10%, which would be in line with current support levels. I'll re-evaluate if it deepens beyond that.
What Are You Watching to Help You Make That Decision?
I'm particularly focused on a technical indicator known as the VWAP (pronounced vee-whap). VWAP stands for "volume weighted average price," and it's tied to trading volume within specific time frames.
What makes the VWAP so important at the moment is that it is tied very closely to the institutional trading community which is driving the sell-off, especially traders acting on behalf of the world's biggest pension funds, hedge funds, and prop shops.
The VWAP gets out of line when orders are so big that the market's normal pricing is hijacked, and returns to normal when the order flow dies down... along with the panic that's created it in the first place.
The VWAP is still accelerating, which tells me the selling could intensify before it gets better.
Should I Sell Everything and Run for the Hills?
Not if you don't have to. Obviously, I cannot advise you personally because I don't know your personal investment objectives or your risk tolerances. Make a quick call to your personal financial adviser if needed.
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History shows very clearly that the markets ebb and flow, which is exactly what's happening today. Moreover, it also shows very clearly that you want to remain on the offensive as long as the underlying case for owning the stocks you do remains intact.
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About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.