World stock markets saw the panic of the last 8 weeks subside, not reverse. The S&P 500 has hit a support level 2635 twice. Traders attempted twice to bring the price lower than this level but failed. This is the level that, were it to be penetrated from above, and remain below 2635 for more than a trading day, (meaning that US markets would halt the declines, Asia would follow suit and the so too the Euro zone one after the other with no exception) we could and indeed can, as it has happened already, expect to see an end to the sharp panic-filled falls that have roiled the markets for the last 2/3 of the 1st quarter of the year.
The S&P at press time has lost 8.43% since the beginning of February. The declines had reached 12% at its 2 worst points. Very similar patterns were traced in all of the major indices globally. We ought to keep two characteristics of this past phenomenon fore frontlets between our eyes.
First it’s the simple economic definition of a crash and a panic. The panic level is a loss of 2% or greater and the Crash standards is 10% or more. All of the markets breached the 10% metric at some point and all recovered. All have and still do stand in breach of the 2% benchmark at the present. The wiggle room part of the story is the amount of time in which the decline occurs. Two months is usually a bit too much time for the falls to be characterized officially. Forget officially. These markets have seen panic level trading and breached, albeit recovered form, crash levels in the past month.
Second is the history behind the last 2 months. The world’s stock markets have been setting all time high records continuously for years now. Look at a long term chart of the S&P and you will see near continuous price advance for the last several years. The chart relates clearly that these new records are hardly fun away bulls vigorously driving up price. Rather they brush up against, nudge, and push almost by indifference the price levels to new highs. Volume is not running away as are not prices. This means that the house does not stand on firm ground, as we indeed saw over the last two months, and more importantly, the likelihood of a serious loss of faith and a mass rush for the exits does not loom far from the horizon. Fore warned is fore armed. We can profit from falls as well as rises in asset prices.