The Stock Market Sell-Off Arrives

By Bob O'Brien

It has been nice a rally, but it looks to me like we could easily see a 10% sell off in stocks. Considering that fact that we were on the verge of the next Great Depression this time last year and that the economy is still getting stronger things are really not too bad.

A sell off here is a healthy sign, because its proof investors are not getting too far ahead of themselves.

You couldn’t help to start to get the feeling last week that the bulls were getting tired and with Tuesday's ISM numbers being pretty good and then still having a big sell off in stocks. This should be an eye opener and proof to any investor/trader that the market wants to go lower for a while.

Has the run up since March been a bear market rally? Who cares! When the market hit its lows back in March of this year, even if you had been investing for 50 years, you had to refresh your eyes, throw out the old playbook, and say the whole game is either over or completely changed. You were looking at an economic mess that had not been faced in your adult life. There is definitely a new economy with a new normal!

This stock market is still very much a traders market and there is still a lot of cash on the sidelines. It will continue to be a traders market for at least a couple of years, because we are far from out of the woods, but at least we have moved away from the cliff.

As companies re-structure themselves and legislation is passed, it will take time before we see real economic growth again. The companies that are surviving right now are doing so at the expense of payroll cuts, and their competitors going out of business.

The China (Shanghai Stock Exchange) sell-off does not help, and as many analysts seem to be arguing as to whether or not the U.S. market is positively correlated to China’s market, it is irrefutable that it is having at least some negative effect on the U.S. stock market.

On the other hand, it is really hard to get too pessimistic for too long when you know that central bankers can print money and are not afraid to do so. The FDIC is running out of money, who cares? They can get money from the Treasury, who get their money from the Fed.

Obviously this cycle cannot continue on forever, and there will be heavy inflation as part of any real economic recovery. This will also further postpone any real growth. Until then it will continue to be a traders market, with some big rallies, and sell offs.

Original article

Comments

[Steve in TN:]

I thought the above comment was going to have some worthwhile to read then I realized it came from Cetin.

Sep 02 01:34 PM

[Larry House:]

Nothing of substance here. Fluff is easy to write but hard to read.

Sep 02 01:54 PM

[bobrien@myw...:]

Hey Larry,

Please be more specific. what are you forecasting? Where do you differ from me? Enlighten us, please!!

Your comment has substance???

The stock market is fluffy and hard to read!

Bob O"Brien

Sep 02 02:34 PM

[drewriders:]

I am so tired of hearing the 'cash on the sidelines' rationale. It doesn't exist. Every share of stock is owned by someone all the time. Just because investors are not bidding up stocks to obscene levels doesn't mean they are not owned. Stocks change hands between investors whether they are bought low or high.

When the marked crashed equity wealth was destroyed. Cash did not leave the market.

Sep 02 03:00 PM

[Carl Spackler:]

Everyone knows that SA has a lot of bears who usually comment, so usually you cannot judge bull or bear bias by posts on SA. However, I do take note when I see the infamous statements such as:

(1) "At this point in the rally, a selloff would be healthy"
(2) "A correction here is needed for the market to go higher"
(3) "We should see only a 10% to 15% correction"
(4) "A minor correction should be expected after this run up"

These are all statements indicating extreme optimistic thinking. Hardly any articles in the news or articles in print anywhere are expecting a retest of the lows. In almost every major crash from peanut butter prices to financial products we usually see a retest several months later of the most recent major low. I am not trying to poop on anyone's parade, but it just appears to me that there is an amazing amount of hubris in the general market. When I see these infamous catch phrases, I sense the top is here. Just saying!

Sep 02 04:58 PM

[whidbey:]

The Assumptions are silly since this market is not a done deal.

The problem is that both government and private investors have options which if selected could lead to major social/political failure. Not just debt, but destruction of the production capacity of the economy. Not obvious, not easy.

Sep 02 05:12 PM

[Donald Ingram:]

This market is heading for the crapper! It will not only test the March low, it will hardly have time to wave as it zooms on down. Who owns the majority of the government debt? Answer - the government. With 43% of the total. Never in the history of the world has there been a situation so bad that government can't make it worse! The consensus rarely gets it right and almost always errs on the side of optimism - except at the bottom!

Sep 03 02:43 AM

[buoy:]

Sometimes, the comments have more substance than the article.

Sep 03 03:18 PM

[myWealth.com:]

"Sometimes" they do!

Bob O


On Sep 03 03:18 PM buoy wrote:

> Sometimes, the comments have more substance than the article.

Sep 07 02:58 PM