Weekly Index Overview

Last week was one for the record books! Traders on both sides of the market were both squeezed relentlessly, and rewarded handsomely… often within hours or days of each other.

The following remarkable technical events occurred last week:

• The Dow plunged 300 points by mid-day only to recover almost fully (swing up by 300 points) in the last hour
• The Dow experienced a swing of 700 points over the last hour Thursday to the first minutes Friday, slaughtering short positions
• The $VIX rose to 37.5, increasing 370% from the beginning of 2007 and making a fresh four-year high
• Price shattered the crucial 200 period moving average only to close definitively above it the next day
• Market volume appears to have made new lifetime highs for two days in a row (Thurs & Fri)

Let’s begin with the Volatility Index (VIX) and its new highs:

The monthly chart above shows only five previous occurrences where the $VIX rose above 37 points.

Let’s see the major recovery on the Dow chart:

From Thursday to Friday, we saw price move from 12,500 to almost 13,200, which represents a swing of almost 700 Dow points, which is an absolutely remarkable price swing.

The positioning of price on the weekly chart seems to show an orderly pullback and bounce off support:

Price nipped slightly below the rising 50 period moving average before recovering quite significantly to find resistance at the rising 20 period average.

Volume has been surging throughout the recent market correction, as traders and funds both unload and acquire new positions.

Where do we go from here? While there is certainly a significant amount of uncertainty in the market, the bulls (buyers) seem to have overtaken the battle, and price appears to be on a path to stabilization. Price will tell its own story, but it is my assessment that the balance has shifted slightly to the bulls, but there are certainly no “all clear” signs in the market now.

Be safe and take an opportunity to learn deeply from the action over the last two weeks – it truly is one for the record books.