As of this moment, my market risk indicator is signalling. It requires a Friday close with all four components signalling to create a market risk warning. So we’ll have to wait till Friday before we panic with the rest of the market.
Here are a couple of things I’m seeing.
- Two of the four components of my market risk indicator are very oversold.
- My core market health indicators are still all positive
- My core market health indicators are falling from overbought levels to more reasonable levels
My conclusion is that the selling is due merely to fear and not concern over core market health. It looks to me like everyone knew that the market was overbought and now they’re all taking profit at the same time. As noted above, don’t panic until we see what the market looks like on Friday.