Massive Sell-Off Hitting US Markets After Japan NIKKEI Closes Down 10%

A potential massive sell-off could be hitting the US Markets today (and in the coming weeks) as the Nikkei 225 index suffered a dramatic loss overnight, finishing down 10.6% after falling as much as 14% intraday.  Combined with the previous day’s loss of 6.2%, this is the worst 2 day performance since 1987 for Japanese equities!

You could have saw something like this coming if you read this blog.

Just this past Thursday I posted about this massive pennant or flag formation that had formed on the S&P 500. Below is the chart of the breakout that I was expecting…

But I had under estimated just how far down this market would go. I had originally thought that a target of 1,270 would act as strong support. The early futures trading suggest that the market could open near 1,260.

My suggesting is to steer clear of this for the time being. Let the market continue to fall and let the VIX continue to spike higher. As option traders we want to to trade at the extremes and although it may seem like an extreme sell-off today, more selling is sure to come in the rest of the week and next week.

There’s no reason to try to buy any bottom and hope for a bounce. If you are going to trade this and buy options just realize that you are paying a very hefty premium for volatility. So any profits will need to be taken quickly to prevent time decay and Vega erosion.