We are in strange, uncharted territory. By every measure of market sentiment we should have had a bounce on Tuesday. If you look at the amount of protection that has been bought, if you look at oversold indicators like relative strength, if you look at 50- and 200-day moving averages, everything is flashing massively oversold.
The problem is, when there are true fundamental issues, you can stay very oversold for a long time.
We now have three areas of uncertainty: first, China; second, the Fed; and, finally—this is the new one—a sort of fear, irrational or not, on the part of retail investors who have decided they want to sell part of their holdings. That's what we saw at the close today.
That's when reports of large market on close imbalances—stock for sale at the close—started circulating, and the Dow fell apart, dropping more than 400 points in the last hour to end down 204.
Mutual fund orders put in during the day get executed at the close, and that's exactly what happened.
This despite the fact that most of the day stocks were up....there were 3,000 stocks up, 120 down at the NYSE at the open. The German stock market went out mid-morning up 5 percent. That gave everyone a reasonably secure feeling.
Then 3 p.m., ET, comes along and everyone on the floor looks at this enormous pile of sell orders at the close from retail investors, and things head south.
My point is that market on close orders from retail investors are now a new risk for the market in the short term.
When does that end? What we need is a few boring days when everything just slows down. Modest volume. VIX goes back into mid-teens. Some time for the fear to dissipate. Not there yet.