Crashing

It is full blown panic out there.  VIX will likely open in the 50s.  The market is starting to price in a global recession as the tariff fears take over.  This level of panic is almost as bad as Covid in March 2020, and worse than you saw in August 2015 or August 2011.  You can even bring up October 1987 now that you are getting another vicious Monday premarket gap down.  This a rare situation with only a few precedents.  When you are getting global margin calls with investors overextended in US equities, you cannot rule out even further panic from here.  

If you are long stocks, the main priority is to manage risk and survive the storm.  You will have plenty of opportunities to make back these losses if you can just avoid blowing up.  Blowing up here takes you out of the game when the opportunities are the greatest.  Even if its makes the road to recovery longer and more tedious, you have to trade smaller.  Its not about being a hero anymore.  Its about survival and living to fight another day.  

After a waterfall decline since the Trump tariff announcement, you've gone from nearly 5700 on SPX down to 4800 at the lows in overnight SPX futures in less than 3 trading days!  That's a 15% move!  That is already off a move from 6150 to 5700 over the previous month.  From February highs to the Sunday overnight lows, it has been a 22% down move.  A bear market already in less than 2 months.  This is almost as fast as the Covid drop in 2020, and Black Monday in 1987.  You also had nearly as severe and fast a drop in August 2011, during the European sovereign debt crisis.  This time, bigger picture, this is a more bearish longer term situation.  

In 1987, you had a nearly parabolic SPX rally from the start of the year, so the markets were quite overbought by October.  For mostly technical reasons, and probably because the market needed to consolidate those huge gains, without any ground breaking news, the market crashed in October.  Up till 1987, you had a steady bull market, but nothing that had the kind of overwhelming investor interest or the high equity exposure that you saw in 2000, or even early 2020.  So post crash, the bottom was basically in, but the bounce was relatively weak considering the huge drop.  You only had a 1/3 retrace of the big move lower in the ensuing bounce.  You also had a retest of the lows about 50 days later, which was successful and the uptrend continued.  

In 2011, you had the SPX recovering from the 2010 correction, which was quite deep, and the markets were not very overbought when you started getting market jitters about European sovereign bond yields, in particular, the PIIGS, Portugal, Italy, Ireland, Greece, and Spain.  It came to a head in August as the market completely panicked and fell 15% in less than 2 weeks.  You didn't get an immediate recovery, but had a super choppy range bound trade from the next 2 months, culminating in a bottom in October, which set up a huge rally that lasted 6 months.  

In 2020, the markets were in a steady uptrend after the deep correction in late 2018, as Powell started cutting rates and the markets got more and more bullish on the global economy going into 2020.  The markets were not very overextended, so the Covid crash proved to be a lasting bottom, a generational buying opportunity given the overwhelming Fed and the government response to the pandemic.  2025 is nothing like this.  So I would not expect anything close to this kind of recovery off the crash.  

With these 3 precedents, one would expect there to be a strong bounce once this crash stops.  The question is when the crash stops. Its probably going to happen sometime within the next 36 hours, but a lot of damage is possible during that time.  You can't try to pick bottoms here.  You have to put on positions that can withstand an adverse move and still be left standing.  That's the only way to trade this market.  Using calls to play for a bounce is very risky, and you may not get rewarded after the bounce, considering the sky high options prices, both calls and puts.  Options are overpriced here, and I wouldn't buy calls or puts at these ridiculous levels.  

Usually I will look at the put/call ratios and the COT data to get an idea of how positioning has changed, but the COT data is only as of last Tuesday, which doesn't include the waterfall declines of Thursday and Friday.  Next Friday's COT release will be much more informative to see how dealers, asset managers, and small speculators reacted to the carnage.  We did see huge volumes as expected in puts and calls last Thursday and Friday, but that doesn't tell you much.  The put/call ratios spiked higher, which is expected for big down days.  

Stuck with a small but deeply underwater SPX long.  Just holding on and will look to sell on a bounce and try to play the chop over the coming weeks.  I am looking for the bottom of the new post crash range to be defined in the next 36 hours, and the top of the range to be defined 1-2 weeks from now.  Post crash, you can't expect any persistent trends because the fundamentals and valuations aren't supportive of a sustained rally from here.  There is no Fed coming in with a big bazooka like 2020, or even 2011.  The market will be whiplashed by tariff headlines, which won't lead to sustained moves from here, as there is now a Trump discount in the equity market, which will take a long time to eliminate.  Trump has clearly showed he doesn't care about the stock market, so investors will be less willing to pay up for US stocks.  US exceptionalism is officially over.