top of page

Panic Indicators

After recording one of the best daily gains in years, a sharp selloff wiped out all of the gains plus more from yesterday, resulting in one of the biggest single-day declines since 2020. Selling occurred across almost all financial assets.

Stock market indexes plummeted from 2.90% to 5.06%. All 11 S&P sectors ended the day with losses, falling 1.02% to 5.6%. Even U.S. Treasuries were not immune to the selling as the intermediate-to-long end of U.S. yields jumped from 4.42% to 5.23%. Commodities traded higher as investors turned to hard assets such as Gold and WTI Crude Oil to protect against rising inflation. The dollar also soared to its highest levels in almost 20-years.

The rapid and sharp market swings over the past two days suggest investors remain uneasy about the state of the economy, the Fed, and geopolitical conditions. Weak performances and deteriorating market internals are depicted on the charts by short-term downtrend channels and selling on rallies at pivotal resistances.

Was the one-day buying spree yesterday a bear market short-covering rally?

Is selling today a classic panic selloff?

If not, then is this the start of wholesale de-risking and deleveraging?

Three short-term technical indicators can warn of increasing fear and possibly panic-type conditions in the marketplace.

VIX Index (VIX - 31.20) – The fear index has been in a technical basing effort between 14-16 and 38-41 over the past 2-years. The recent sharp rise in VIX suggests investors are no longer complacent about the stock market. Investors have turned increasingly fearful. When investors are fearful, they sell into market weakness, resulting in lower stock prices. Panic market conditions often lead to a selling climax. Above the top of the 2-year range at 38-39 confirms a VIX breakout and suggests more SPX selling as VIX rallies to 65 (triangle breakout target) and above this 84.47 (Mar 2020). Will the VIX breakout finally trigger a stock market (SPX) panic selling?

Short-Term Trading Arms Index (TRIN – 2.40) – It is a popular trading indicator that tracks the number of stocks that are rising and declining in value to their trading volume. A value above 2 is bearish, and below 1 is bullish. Above 2 signals extreme bearish conditions. TRIN is currently trading at 2.40. However, the indicator has achieved the mid-2s and even as high as 3.78 (8/19/19) numerous times. The indicator warns of fear escalating but is not yet trading at the extreme readings to trigger a market capitulation or selling climax.

National Association of Active Investment (NAAIM) Exposure Index (57.18) – The index is often referred to as a Smart Money Indicator since it tracks the stock exposures of active money managers. Because large institutional investors tend to influence the overall stock market, their collective buying or selling can signal fear and greed in the stock market. Big investors currently hold 57.18% of their portfolios in stocks. Although the Exposure Index fell to 30.30% on 3/8/22, it has promptly rebounded toward neutral levels. NAAIM may need to fall to 10-16% (i.e., 2020 pandemic) and to -2% to 2% (i.e., 2007-2009 global financial crisis) before a sustainable market bottom can develop.

The three indicators suggest investors are fearful but not at panic levels. A panic selloff is not mandatory, but it is the easiest way to a capitulation bottom. Panic selling serves two purposes - it washes out the remaining sellers and brings back longer-term buyers.

Investors are nearing a tipping point. Stocks are also on the edge of a cliff. A slight breeze may push investors and the stock market over the edge.

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

68 views0 comments

Recent Posts

See All

Closing of the Newsletter

Dear clients, After four rewarding years, the time has come for me to close the Lee Technical Strategy Newsletter, effective today. I want to take this opportunity to let you know what a great honor a


bottom of page