S&P 500: Markets in Turmoil

What happened on Monday 07th of April?

That day hit many investors by surprise and with a shock at the same time, as markets like the S&P 500 were in turmoil. In fact, depending how you measure it, it was the most volatile trading day and also a huge decline in the entire past 40 years! You can simply measure the volatility of the day in an absolute way by substracting the high from the low and compare that the previous close, you can do it on a percentage basis or even better use the Average True Range (ATR) indicator to get the results.

The biggest one?

Now wait a minute! People who have been long time in the market will say “the crash of 1987 was much bigger!”.

True that if you measure the 1 day percentage change from close to close. The black Monday of October 19th, 1987 had an ATR% of over 20%!

But don’t forget, there are many type of investors who will look at the market from different angles:

• stock investors have lost some of their assets on April 7th, but 1987 would have wiped out a much larger part of their investments, as the percentage change was bigger and therefore more relevant.
• future investors base their calculations in basis points (bips), so for them the absolute change is more important than the percentage one when comparing declining market days. So April 7th will remain in their memories as the worst trading day of the last 40 years (so far…).

I leave it up to you to decide which market crash ranks higher or lower in your personal trading history. All of the significant trading days have one thing in common though: they mark long term change. Here’s a few long-term charts showing you what the market looks like from a technical point of view:

S&P 500: Markets in Turmoil Analysis and Insights – what to look out for next

Summary

Remember that markets are crazy and driven >90% by algos, not by human investors. This will simply lead to even MORE volatility and quick reactions.

I have seen crazy things happening in the market: one day, the market looks like it’s about to crash, a day and a major economic news later it reversed completely and suddenly looks like we’re going to the moon. The problem is not technical analysis, but how we apply it to analyze markets.

A monthly signal is only confirmed at the end of the month, once new data for the next bar (new month) is coming in. Just like you won’t judge the daily market action based on early morning data only.

So while the weekly charts look pretty bad already, we are slipping into bad monthly charts as well. It’s not a straight line down though, but more of a 3 steps down, 2 steps up behavior. We know that the current politicians can have a significant impact with their statements. New tariffs or sudden new trade-free agreements? Both news can lead to volatile days, but don’t forget: many companies have reached valuations that remind us of the dotcom area. Lower markets would be in the sense of US-politics.

My expectations for the time ahead:

• lower markets over time (sell in May and go away? Summer vacation month with low trading volume. September is historically a bad month for trading,…)
• rising volatility
• short term corrections with big up swings (any news about a new trade agreement, or company’s earning “less bad than expected” can trigger this)

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