I have two news for you, one bad and one good. The selloff is going to continue on Monday as futures are already down another 2.5% as of now; yes it may change by the end of the night and we may open higher and see a V shape recovery, but as of now, it doesn’t look much like that’s would be the case.

The good news is that this creates a great opportunity for buying more stocks for cheap.
Just do not panic!

See the third large red candle? That’s tonight futures! Nasty right?

Is this the time of the end of the world?

I do not think so, but if you are scared, go ahead and sell your stocks. I am holding tight and wait for this rout to end. Then I will start adding more shares to my dividend positions.

But what about options positions?

Well, this is unfortunate and we have to close a few. These moves are very wild, huge steep, and fast. Unfortunately I do not have an effective defense for such moves and the best thing to do is to close all endangered positions and move on.

The good news here is that routs like this typically do not last long and even this week, we may see a recovery (at least partial one).

If you put this move into a perspective of previous sell offs, you will see how extraordinary this one is:

2008

It took the market almost 2 months to lose the first 10% of value (from 10/08/2007 to 11/19/2008 when market dropped from 1582 all-time high to 1420; 162 points)

It took the market 6 months to lose the first 20% of value (from 10/08/2007 to 3/17/2008 when market dropped from 1582 all-time high to 1260, 322 points)

Of course after a few bounces the market went all the way down to $660 level

2010

It took the market 2 months to lose 10% of value (from 04/19/2010 to 06/28/2010 when market dropped from 1220 to 1008; 212 points)

2011

It took the market 2 months to lose 25% of value (from 07/11/2011 to 09/28/2010 when market dropped from 1354 to 1003, 351 points)

2012

It took the market 2 and a half months to lose 10% of value (from 03/26/2012 to 06/04/2012 when market dropped from 1418 to 1268, 152 points)

2014

It took the market 1 month to lose 10% of value (from 09/15/2014 to 10/13/2014 when market dropped from 2018 to 1819, 199 points)

And what do we have today?

Today, the market lost a whopping 185 points (8.80%) in 5 days.

Let me repeat it – 185 points or 8.80% in F I V E days!

Can you see what fear and panic this is? And how irrational it is? I see it that all this China mess is an overreaction and maybe an excuse for a correction everybody was waiting for. But is it a justified sell off? As a trader named Jani put it, I believe, it is not:

To be perfectly honest, the US economy is extraordinarily self-absorbed. Seventy percent of our GDP is service based and we run a gigantic trade deficit. Does that sound like an economy dependent on global growth? Lower energy and commodity prices, cheaper junk at Walmart; what does that mean for our economy? It means consumers will have more money left to spend on massages, vacations, and bathroom remodels. Should we be worried about our economy? Not really.

Obviously the China story will affect companies like AAPL and TSLA that have huge Chinese growth premiums built into their stock price. But these are the exception in the S&P500, not the rule. While the pessimists are concerned about plunging energy sector profits, we know American consumers are lousy savers and without a doubt the dollars saved on energy will find their way into other sectors of the economy. That’s bad for energy shareholders, but it is a net neutral for our economy since one loss is offset by another gain. Jani, The Cracked Market

Pullbacks happen. It is inevitable. You will see many bears now coming out and telling you “we told you so”. Many will predict even worse outcome and more selling and more disaster and the end of the stock market.

If you are scared, I have yet another perspective for you.

I borrowed the picture from Roadmap2retire investor who published it on his blog. If you look at the market capitalization of China who wants us to believe that crashing Chinese market could crash the US market? This is exactly what Jani said about the US market above.

So, if you are scared and plan on dumping your stocks, funds, options, do not do it. It is not worth it. The only exception is with options if you have expiration near and want to protect yourself, then yes, close the trade, or if your retirement starts next week and you will need money next week. Otherwise, it is not worth it either.

And there is one more thing I have for you to think we are probably at the end of the party.

The SPX futures are down 2.5% at 1925 as of this writing. If the market opens down at 1925 on Monday morning, it will be a big gap down opening. I think the market will have the tendency to close that gap, so although Monday will still be a down day, we may actually see a green candle or the beginning of a new rally. Will it last? I do not know. Will it even happen? I do not know either. But it gives me a hope that this rout may be finally over and I will not be required to close more trades with losses and the new trades offset those I already have to close.

So good luck and pick up that treasure in the market now, there is a plenty of stocks for great price and plenty of volatility to sell!