So clearly I was wrong on my bottom call last week. I had reasoned that a drop would need to begin more gradually before getting into the crash/extreme correction phase. But once the markets crossed a certain point on Friday and then this morning, that analysis went out the window.

Fortunately the market staged one hell of a reversal into the close today and ended green after being down more than 700 points on the Nasdaq-100 and I used the opportunity to sell the SPY calls I bought on Thursday somehow only down about 25% despite the S&P being about 100 points lower. I don’t think we’ve touched bottom here. What a difference a few days makes.

Here’s why I think we have more pain in this selloff. If you look at previous crashes/deep corrections, a familiar pattern emerges. Volume picks up to ridiculous levels as selling accelerates, sentiment gets flushed, and the market way overshoots to the downside.

Volume today was enormous, as was it on Friday. But something about sentiment today makes me think we have further to go in this selloff. We are at the phase where people are joking and many are talking about capitulation and buyable dips. Markets don’t bottom when people recognize capitulation and say it’s time to buy. People spot what they think is capitulation, the market rallies, then drops much more as real capitulation occurs, chaos emerges and rumors start to circulate about margin calls and insolvency. Then panic sets in and you find a bottom. We aren’t there yet. Though deep and fast as this drop has been, it doesn’t seem to have created any real fear. There’s still tons of dip-buying.

Let’s look at the case of the 1929 market crash. On Monday, October 21st, the market dropped on near-record volume then staged a bit of a comeback towards the end of the day and the market rallied on Tuesday, accompanied by reassurances that all was well from some well-respected commentators. But then on Wednesday the selling returned and things got much worse from there.

I don’t think this is 1929. I don’t even think it’s anything more than a price and sentiment correction similar to 1962 given that there’s no damage in credit markets or economic warnings. But stocks like Tesla and Nvidia that had astronomical rises towards the end of the year need to come down more in my opinion. There still hasn’t been lasting damage to sentiment. If anything if we bottomed here it would only make people more bullish. I’d like to see a flush in a stock like Tesla of 50% or so. Sounds dramatic I know but so far we’ve only undone about three months worth of gains. Consider that Nvidia in October was around $200. Even after this correction it’s up 15% from those levels. We need to undo more like a year or two of gains, which for the QQQ’s would take us down to 240 or so. Nvidia to $120 or so.

I expect a decent market tomorrow as we await the Fed and some large earnings reports but I don’t think either can do anything other than pause the selling and if we get a rally tomorrow and the VIX drops I’d be willing to go for some short-dated very OTM puts on the QQQ’s again. I believe we are close to a bottom in time, as I think we would get this dramatic selloff sometime early next week, but I think we aren’t close in price. I’m looking for chaos, real fear and a massive overshoot to the downside before I’d be looking for a lasting reversal. People always underestimate how much damage can be done. I think there will come a point where a great buying opportunity will come but we haven’t reached it yet.