The panic experienced over the last two weeks is behind us. Panics (drops in price levels of over 2 full percentage points) are unusual events that can provide outstanding profit opportunities. They are not for everyone however. One has to know how to ride these events like surfing an ocean wave. For those of us not versed in the arts of wave riding, (or have not been following our signals to ride them) rest easily, the waves have resided and market movements have returned to their usual orders of magnitude. This means that volatility has returned to its long term average of .1 to .5% per day, not 1 to 6 full percentage points per day, and volumes have returned to their usual averages. Nothing in the actual world produced this panic. There were no fundamental events, like a particularly negative economic report, outbreak of war or disturbing utterance form the Whitehouse. The reason was simple fear. When markets reach all-time highs, traders become nervous because they consider taking profit but hesitate because of greed, which forces most traders to fantasize about endless profits. The fear has subsided, for now. The reasons for that fear however are still extent. Equity markets have been setting “records” regularly for years. These records however are not characterized by running bulls, rather they are like butterflies brushing up against and gently nudging the old “record”.
The S&P 500 fell 10.21% in 8 days and gained back 5.66% in the last 7. It has retraced just slightly more than the .5 Fibonacci retracement level. Look for sustained prices above 2733 for the index to return to its pre-panic level of 2874. Sustained prices at or slightly above this level indicate strength and likelihood of continued advancement. This kind of volatility is unusual, but when you look at the chart it is hardly incomprehensible. The mode is recovery.