Market Sell off this week

As you are aware, the markets have experienced a severe decline this week as fear over the spread of the coronavirus has caused a panic. European markets are down more than 12% this week and the U.S. is down more than 13%. The U.S. reached a new all-time high only last week and there has never been a decline of this severity in a week following an all-time-high, so this has been a historic week. The markets have been caught off-guard and the decline has been exacerbated by public investors who have recently piled into the market, only to receive a nasty shock, and are now exiting en-masse.

There is major support around 292.60 for SPY the S&P ETF and this level will be tested today.

The Nikkei has broken its Major Support

 

I see some evidence in market sentiment indicators that extreme levels of pessimism have quickly been reached, these normally associated with market lows. For example, there has been a huge net outflow of 22.1 Billion dollars this week from U.S. mutual funds. A net outflow of more than 20 Billion dollars in a single week happens rarely, but when it does it usually indicates a market low of some degree is close.

 

I also note that the CNN Fear & Greed Index is now registering Extreme Fear, where one week ago is was Neutral.

 

Considering the huge sell-off in the S&P 500 this week, the decline in the Rydex ratio is not yet registering panic/fear, which suggests there may be more downside first.