Stock Market Investors Ready To Panic Next Week

Conditions are right and last week’s dismal market removed the last vestiges of hope for a rebound or recovery. It’s now a decision of whether to get out partially or wholly. Whatever, expect emotions to drive the action, and that means fear and panic are back.

Here is how I arrived at this forecast…

After posting my Friday write-up (“Stock Market Fear Is Overdue, So Be Ready For Its Reappearance“), I began going through my weekly chart analysis. That solid red S&P 500 return map in my Friday article prepared me to expect plenty of negativity. However, what I found was downright ugly – and ominous. And that’s looking at weekly graphs going back to the beginning of 2021.

I believe that those 16 months are the crucial period for influencing investor emotions. Since 2021 was a banner year that contained lots of bullishness, a 2022 reversal of most or all of those gains could cause investors to suffer and react emotionally.

What I didn’t expect is that the disheartening scenario is now here

Note: The graphs at this article’s end show the discouraging pictures

The Nasdaq Composite index has wiped out 2021 and more. The Nasdaq 100, where the popular leaders reside is back to where it started. The DJIA is better off (still up almost 8%), but it never did ride the speculative bull. Then there is the index for all: the S&P 500. It still retains a 10% return for those 16 months, although that’s only about one-third of what it was four months ago.

But that isn’t all…

The widely used trend lines have lost their upward moves. Moreover, there is the clear, negative signal of the shorter-term trend line crossing down through the longer-term trend line. Such moves bode ill.

Perhaps worst are the broken foundations that were established only recently. All but the DJIA’s were penetrated last week with gusto. What support levels remain? Nothing of substance. Moreover, fundamental sales/earnings valuations are out the window because building inflation-recession concerns make forecasts questionable. Nor do dividend yields provide a cushion as bond yields continue to rise. Therefore, investors are now left looking at only air below.

So, what’s next?

Well, there’s panic selling. As I wrote in my Friday article, the missing element in this bear market has been investor fear. It will come, but I added that its long delay could mean that we see fear quickly give way to panic selling.

How soon?

Before I did my chart work, I thought it could be anytime during the next month or two. Now, I believe it’s very close – perhaps even this coming Monday morning.

I know! That’s a heck of a thing to suggest. However, my experience tells me that all the bull props are gone, so there is nothing holding back the panic selling except a bout of buying from who-knows-where-or-why.

Now imagine this weekend for investors. Can’t you just see them thinking about last week’s losses. Some (many?) could decide it’s time to get out with smaller, but, at least, positive gains – or minimal losses. There are plenty of Wall Street axioms to support doing just that. Those sales wouldn’t be classified as “panic,” but if the volume is high enough, buyers will step aside creating the perfect environment for panic selling to drive a falling market. It’s certainly happened before, and there is nothing today to prevent it.

The bottom line: Don’t count on anything because emotions are about to take over

Fear is coming, and panic selling is likely to follow close behind. The timing of emotional events is normally very difficult. However, with fear overdue and stock returns continuing to melt away, there is a real possibility that the gruesome twosome will take the stage as early as next week – perhaps even starting as early as Monday’s opening bell.

Below: The weekly index graphs covering the past 16 months

First is the cumulative performance comparison for the four indexes. Following are the separate price and performance graphs for each index: S&P 500, DJIA, Nasdaq 100 and Nasdaq Composite.