Best of the Week
Most Popular
1. Trumponomics Stock Market 2018 - The Manchurian President (1/2) - Nadeem_Walayat
2.Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - Dan_Amerman
3.China is Now Officially at War With the US and Japan - Graham_Summers
4.Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18 - Plunger
5.Stock Market Longer-Term Charts Show Incredible Potential - Chris_Vermeulen
6.U.S. Stock Market Cycles Update - Jim_Curry
7.Another Stock Market Drop Next Week? - Brad_Gudgeon
8.The Death of the US Real Estate Dream - Harry_Dent
9.Gold Market Signal vs. Noise - Jordan_Roy_Byrne
10.The Fonzie–Ponzi Theory of Government Debt: An Update - F_F_Wiley
Last 7 days
Dollargeddon - Gold Price to Soar Above $6,000 - 16th Aug 18
Stock Market Higher Again, Correction Over? - 16th Aug 18
Up Your Forex Trading Game - 16th Aug 18
Large Caps Underperformance vs. Small Caps is Bullish for Stocks - 16th Aug 18
“The Big Grab” - Failing Pension and Retirement System - 16th Aug 18
How US Indo-Pacific Vision Forgot Asian Development - 16th Aug 18
Impulse Moves in the Currencies - 15th Aug 19
Best Merlin UK Theme Park Summer Holiday 2018 - Thorpe, Alton Towers, LegoLand or Chessington? - 15th Aug 18
The Essence of Writing an Essay that Must be Understood - 15th Aug 19
Is Solar Energy Rising From The Ashes Again? - 15th Aug 18
A Bullish Bond Argument That Hides in Plain Sight - 15th Aug 18
Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - 15th Aug 19
A Depressed Economy And A Silver Boom - 15th Aug 19
Moving Averages Help You Define Market Trend – Here’s How - 14th Aug 18
It's Time for A New Economic Strategy in Turkey - 14th Aug 18
Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - 14th Aug 18
Dow Stock Market Trend Forecast 2018 - Video - 13th Aug 18
Stock Market Downtrend to Continue? - 13th Aug 18
More Signs That the Stock Market Will Rally Until 2019 - 13th Aug 18
New Stock Market Correction Underway - 13th Aug 18
Talk Cold Turkey Economic Crisis - 13th Aug 18
Which UK Best Theme Park - Alton Towers vs Thorpe Park vs Lego Land vs Chessington World - 12th Aug 18
USD is Rising. What this Means for Currencies and Stocks - 12th Aug 18
Hardest US Housing Market Places to Live - Look Out Middle Class - 12th Aug 18
America’s Suburbs Are Making a Comeback - 12th Aug 18
Stock Market US Presidential Cycle, Seasonal Analysis and Economy - Video - 12th Aug 18
Yield Curve Inversion and the Stock Market - Video - 11th Aug 18
Land Rover Discovery Sport 1st Dealer Oil Change Service - What to Expect - 11th Aug 18
How to Setup Webinars and Use Them to Overcome the Barriers in E-Learning - 11th Aug 18
Big US Stocks’ Q2’18 Fundamentals - 11th Aug 18
Dow Stock Market Trend Forecast 2018 - 10th Aug 18
SPX Testing Its First Support Level - 10th Aug 18
Dreaming of a "Comfortable Retirement" on a Public Pension? - 10th Aug 18
The Forrest Gump of All Future Democrat Election Losses - 10th Aug 18
More Uncertainty as Stocks Got Closer to January Record High - 10th Aug 18

Market Oracle FREE Newsletter

Trading Any Market

Stock Market Panic Selling, What Does It Mean?

Stock-Markets / Stock Markets 2011 Jul 28, 2011 - 04:28 AM GMT

By: Chris_Vermeulen

Stock-Markets Best Financial Markets Analysis ArticleIt was an exciting trading session Wednesday to say the least… With all the uncertainty floating around it is causing the stock market to be more volatile than normal. It seems like every other day there is some big headline news causing either strong buying of stocks or strong selling to take place. It’s this type of price action which spooks the average investor causing them to panic out of positions at key support areas just before a continued move higher.


I like to focus on the market when I see extreme buying or selling taking place. During times of extreme buying or selling in equities, investors are reacting on emotions rather than logic and that’s when I benefit from everyone rushing to the door trying to get rid of their positions at any price they can get.

Let’s take a look at what the market is telling us right now…

SPY – SP500 Index Exchange Traded Fund – Daily Chart

In this chart you can see my custom green indicator at the bottom. I use this to measure fear in the market. When this indicator is trading above 5 I know the masses are unloading stocks as quick as they can in pure fear that a market collapse is about to take place. But the biggest thing I learned trading over the past 12 years is that when everyone is doing something its best to skip the trade or start looking for technical setups which will get you in against the masses because the move is generally almost over.

What I get from this chart below is:

  1. The trend is still up
  2. We have not broken the previous pivot low from last week
  3. The market is showing extreme panic selling and I anticipate some type of bounce or bottom shortly.

VIX – Volatility Index – Daily Chart

The volatility index measures fear in the market. So with the vix spiking up into a key resistance level, I would not be surprised to see it go a little higher then sharply reverse back down.

Trading off fear and greed can be very profitable but you must understand the two. Greed is a slow driving force in the financial market. As prices rise day after day the greedy continue to buy more and if they see any sharp dip they just look at it as an opportunity to buy even more (even though its a sign of smart money distribution selling) until eventually there is a huge collapse from the big money players unloading their positions and the greedy are left holding the back with a higher cost average price. This is the reason market tops tend to take 3-7 times longer to form than market bottoms.

Fear on the other hand is very quick. Think of it as if you were walking through your house at night down a dark hallway. When all of a sudden your friend jumps out and screams catching you completely off guard. What do you do? You jump, most likely yell and drop everything you were doing, then 30 seconds later you are back to normal. Well this is what happens in the stocks market also...

Traders hold their positions until a piece of news hits the wires or there is a strong selling day and their investments start falling quickly. This sudden news or price movement which they were not anticipating causes traders to panic and sell everything before the investment collapses. Typically a couple days later the price rebounds and after a strong bounce these traders decide to buy back their position and ride the price to new highs. So what if you were to get in near the bottom then let all the traders bought back after you? It generally means big money for you. This is what I look for and what I consider panic selling to be.

Stocks Showing Signs of Being Oversold

This chart below shows the percentage of stocks trading above the 20 day moving average. Over time I have found that when 75% or more of stocks are trading above their 20MA then the market is getting overbought and one should be looking to tighten stops, take partial profits and or look for short setups.

On the flip side when only 25% stocks are trading above the 20 day moving average I find the market usually puts in a bounce or rally which lasts several weeks.

As you can see in this chart after Wednesday’s sharp move lower we are now entering into an oversold market condition. I expect volatile prices for a few days as the market stabilizes then a move to the upside.

Mid-Week Trend Conclusion:

In short, I feel we are in for some choppy price action over the next 2-10 sessions. With the current market trends I do feel that the odds are pointing to higher prices for both stocks and commodities.

If you would like to get more of my daily analysis to join my newsletter at www.GoldAndOilGuy.com

By Chris Vermeulen

Chris@TheGoldAndOilGuy.com

Please visit my website for more information. http://www.TheGoldAndOilGuy.com

Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com.  There he shares his highly successful, low-risk trading method.  For 6 years Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets.  Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return.

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.  


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules