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Crash!

Yes, our markets have crashed.  Again.  For the 3rd time in 11 years.  Something has to be wrong with our regulators and financial institutions for this to have happened again.  Sigh.

 

Monday, August 8th was a horrible session in the market and I am struck by both the amount of losses and the amount of fear in the marketplace.  It was/is so thick you could smell it.  However, like a forest fire, Market Crashes tend to burn themselves out when they run out of fuel which in this case are investors clicking the "sell" button like their lives depended on it.

 

Eventually the markets bounce at some level simply because the sellers run out of bullets, and I think that may have happened during the night of August 8th as institutions did not stop trading when the normal sessions ended at 4 pm EST.  In fact the S&P 500 Index closed at 1119.46 the day of August 8th, but overnight the futures contracts that represent the S&P traded to as low as 1076.10 before rebounding.  That is an additional down 5% and may have represented the extreme panic we have been seeing.

 

You'll see in the below chart of the S&P 500 that I have marked where 1076.10 roughly is.  It is one thing to have a bad day-session, but for it to continue like that overnight is amazing.  When combined with the other chart below of the VIX "Fear Index" it means that a bottom may have been put in for the time-being.

 

The VIX index measures fear in the market and is at levels where, if it goes higher, approximate the levels reached when our financial system almost disintegrated in 2008.  I don't think that is happening here so to me the VIX is showing extreme levels of fear, and that is how bottoms are made.

 

Whether you agree or disagree only time will tell and who knows, in a few months we might be a lot lower.  All I am saying is that for the moment, things may have reached a temporary nadir.

 

The best way to play it is to have a system and if you stay in cash that is fine too.  Look for stocks with strength and not weakness, and if you do trade then don't forget to use stops and protect yourself from loss as prices move fast during times like these.

Good luck out there.