The first wave of selling comes from those that are long options and sell because they are losing money. The second wave comes from those that short options, thinking there is money to be made because the market of stocks will move little. This second wave is where leverage in the market is built up. This is where I think we are now.
What I am waiting for from here is a pick up in the VIX (I don't really use the VIX, rather baskets of other options; but they are highly correlated and they are confirming each other). When it begins to turn up, that to me is a signal that some very smart buyers who have good information are beginning to buy options. I started to see it yesterday, but so far today the VIX has trailed back off. This signal is one of the best I use and is almost always a bearish one. It won't catch the top, but it is good at catching a sustainable trend lower. We are almost there.
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