Good morning, traders…
Yesterday was a bloodbath.
The QQQ dropped 1.7%. The SPY fell 1%. Mega-cap tech stocks like Apple Inc. (NASDAQ: AAPL) and Amazon.com, Inc. were leading the way down.
If you were long and didn’t have stops in place, you felt it.
What caused the selling? Take your pick:
China trade tensions are escalating. The government shutdown continues. Economic data is missing because agencies aren’t reporting. Netflix, Inc. (NASDAQ: NFLX) earnings disappointed. CPI data is coming on Friday.
There’s nothing the market hates more than uncertainty. And right now, uncertainty is sky-high.
When stocks sell off like this, your first instinct is probably to buy the dip.
That’s what you’ve been trained to do for years. Dips get bought. Weakness gets absorbed. The market goes back up.
But sometimes, it’s more than a dip. No one knows for sure. But if you can’t at least take the steps to tell the difference, you’re at risk of getting crushed.
Yesterday felt like a warning shot. The market internals are confirming that theory, showing signs of deterioration.
What now? Do you heed the warning shot and adjust your approach? Or do you ignore it and hope everything goes back to normal?
Is This Just A Dip Or The Start Of Something Worse?
What Yesterday’s Selloff Revealed
Big tech names like AAPL and GOOGL led the decline, which tells you this wasn’t just a few weak sectors … it was broad selling pressure.
But the selloff itself isn’t what concerns me. Markets pull back after big runs. That’s normal.
The potential causes are piling up:
China trade issues are back in the headlines, creating renewed uncertainty about global economic growth.
The government remains shut down, which means we’re flying blind on economic data. The agencies that report critical numbers aren’t meeting regularly.
Missing economic data makes it harder to gauge the Fed’s next move, which means more uncertainty about rate cuts.
Netflix earnings missed expectations, which spooked investors about consumer spending and the health of big tech.
CPI data on Friday could swing the market either direction, depending on what it shows.
Stack all of that together, and you have a market operating with maximum uncertainty and minimal clarity.
Analyzing the SPY and VIX Structure
When the market gets choppy, I go back to the basics.
I look at two charts first: the SPY and the VIX.
The SPY had a strong uptrend from May through October. It consistently held the 34 EMA (exponential moving average), a key trend indicator.
Every time the SPY pulled back to that level, it bounced. That’s a healthy uptrend.
But look at what’s happening now. We’re seeing lower highs and lower lows.
The SPY is breaking down below levels that previously held as support.
That’s a potential trend reversal in progress.
Now look at the VIX breaking above resistance.
That’s an upward trend reversal, which signals increasing fear and uncertainty in the market.
Finally, don’t sleep on the $TICK Index, which shows how many stocks on the NYSE are trading on an uptick (price moving higher) versus a downtick (price moving lower), and it gives you a net number.
Here’s what the numbers mean:
Positive $TICK (e.g., +500) = More stocks are trading on an uptick than a downtick. This is bullish pressure. The market is buying.
Negative $TICK (e.g., -800) = More stocks are trading on a downtick than an uptick. This is bearish pressure. The market is selling.
The $TICK fluctuates constantly throughout the day. It’s a live feed of market sentiment. You’re watching the tug-of-war between buyers and sellers play out in real time.
When all of these happen at the same time — SPY breaking down, VIX breaking out, and $TICK reading negative — you need to pay attention.
If the SPY holds support around $453-$455 and breaks back above previous highs, then yesterday might just be a blip.
But if it fails to hold that support, we could be entering a structural downtrend.
Until we know which way this resolves, caution is the name of the game.
That’s why I’m sticking to the 1 strategy that works in 80% of market conditions.*
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The market won’t wait for you to figure this out on your own.
The market won’t wait for you to figure this out on your own.
3 Questions to Ask Daily
Before I take any trades in this environment, I ask myself three questions:
Question 1: What’s the SPY’s structure?
Is it trending up, trending down, or chopping in a range? Right now, the SPY is showing lower highs and lower lows, which suggests a potential breakdown. That’s a yellow flag.
Question 2: How’s the VIX trending?
Is it trending up, trending down, or flat? Currently, the VIX is trending up and breaking above resistance. That’s another yellow flag.
Question 3: How much macro uncertainty is there?
Are there major events on the calendar? Are there geopolitical issues?
As mentioned earlier, we have China trade tensions, a government shutdown, missing economic data, and CPI on Friday. That’s maximum uncertainty.
We don’t have clarity on those questions, so I’m being more conservative with my trading.
The Injured Athlete
Think of the market like an injured athlete.
When your star player goes down with an injury, you don’t put them back in the game the next day just because you want them to play.
You wait. You watch. You make sure they’re healthy before you put them in again.
Treat the market the same way.
Right now, both the SPY and the VIX are showing signs of injury.
The SPY is breaking down. The VIX is spiking.
Until the SPY reclaims support and the VIX settles down, be very selective.
This doesn’t mean you can’t trade. It means you need to adjust your expectations, size down your positions, and use tighter stops.
The market will tell you when it’s ready to run again. Your job is to listen.
Happy trading,
Ben Sturgill
*Past performance does not indicate future results
