Panic Selling Surges To 2008 Levels

The markets are under severe selling pressure again this morning. There was no real news catalyst, just the same recent trends stemming largely from concerns that problems in Europe are larger than perceived.

The major indexes have been down as much as 3% in early trading, pushing the S&P 500 Index below its key 200-day moving average, which is around the 1100 level. There has been considerable technical damage done to the market, and it won't be erased overnight.

I have said that it is a bearish sign that the market is this oversold and hasn't been able to put together a bounce. The folks at Bespoke put out a note that said that 61% of stocks are currently "oversold", a level that hasn't been seen since March 2009. Still, I feel a bounce coming.

Asian markets were lower overnight; the dollar is bouncing, as the euro weakens again; oil is trading down near $67.75, and gold is down also, touching $1184; the 10-year yield is down to 3.25%; and the VIX has spiked all the way up to 45, which is also a level that we have not seen since March 2009. Amazing.

Trading comment: Looking at the sentiment indicators, the 10-day CBOE put/call and ISEE ratios have surged to levels not seen since the fall of 2008. That's a huge amount of bearishness out there, and represents a true panic to rush into puts as traders scramble to put on downside protection.

Longer-term, if Europe worsens and if Asia continues to slow as well, it could lead to lower levels in the equity markets. But in the near-term, these levels of oversold stocks and bearish sentiment have almost always led to a significant bounce in the markets. I think that is the most likely scenario, so it makes more sense to get defensive after the market bounces than it does to do so today.