A Special Note on Yesterday's Sell-Off

Keith Fitz-Gerald

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.

In our case, that's why we focus almost exclusively on the Unstoppable Trends and the "must-have" companies we talk about all the time. Not only do those have trillions of dollars backing them, but they're the single best and most profitable way to tap into raw, unadulterated growth.

What Should I Be Doing Now?

Three things:

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Keith Fitz-Gerald

About the Author

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Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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