Markets Are on the Verge of a Waterfall-Like Collapse

What is it about “Big Wednesday” wipeouts that I find so intriguing anyway? After living in Hawaii as a young man for 35 years I can relate. And I’ve posted various Wednesday wipeouts more frequently recently than I ever expected.

The point is markets are on the verge of a waterfall-like collapse.

Even with conditions as oversold as currently, an epic [pardon the surfer lingo] collapse could happen. This is the result of all the news you know by now. Why regurgitate them here?

The government may have little ammo left, but don’t be surprised if they start buying stocks and index futures to prop markets. After all, as I’ve been saying their attitude, “In for a penny, in for a pound”, means they’re committed to do just about anything.

I’d say we’re exiting the denial phase and entering capitulation where a “get me out” mentality dominates. This from all manner of delevering activities plus redemptions from mutual funds, financial advisory accounts, hedge funds, endowments and so forth. This selling runs all across all asset classes except bonds and the dollar.

Investors want safety and cash.

Volume expanded today while breadth was as miserable as one would expect.

Capitulation? It feels like that’s happening and we may experience a sharp waterfall like collapse if investors decide to throw in the towel. There’s no certainty of that or anything.

Many people have been discussing a so-called Black Swan event. This is taken from the English who felt there were only white swans until confronted by black swans in Australia. At least this is my understanding. The event has been expanded to current market conditions whereby the financial media, regulators and market participants believed that what we’re experiencing now would never happen. But it has, hence the Black Swan belief as all are blindsided. However, there were many ignored voices of dissent who argued strongly that these conditions would occur once the housing bubble was unwound. Then, they argued, this house of cards would collapse. And, so it has.

With so many investors in shock they search for a reason and have turned to the Black Swan event as the reason. They didn’t know this would happen. No one told them. They chose not to listen to the message from the charts and stuck to their plans. Hopefully people will learn but I doubt it.

Now all want to know what to do. For us, we’re in cash and most subscribers at least are anxious to “do something”. Patience and risk management is more critical now than at any other time. Our time to invest will come. Perhaps we’ll miss a big waterfall event as short sellers. Or, we’ll be late to the next upside. But new tools like leveraged long or short ETFs allow us now to make up ground fast should we be late. That’s fine with me.

Have a pleasant evening.

Disclaimer: The ETF Digest is long FXY.