Don't Panic

One benefit of keeping consistent breadth metrics across multiple market cycles is being able to compare and contrast the nuances and contextualize the current market structure.  The last correction of magnitude was the period of late July through August in 2011.  This was a period where there was clear evidence of forced liquidation.  As exhibited by the StockBee Market Monitor, across multiple time frames there was rapid deterioration as the 10 day differential of break outs to break downs shifted from 509 to -5566 in 8 days, the secondary indicator went from 542 to -3596, and the primary to -2050 during this stretch.

This Is Panic

In comparison it has taken 20 days for the break out to break down differential to shift from a modest -9 to -1529.  During this stretch the secondary went from 100 to -1840, and the primary from 20 to -737.

This Is Not Panic

What can be gleamed from this is that while there has been distribution and the market is currently under pressure and exhibiting a greater out flow from stocks, in relation to what a rush to exit looks like, this doesn’t even qualify.  In other words, this is far from a panic situation.  

Unfortunately, this is about as far as one can extrapolate the narrative.  Knowing what is occurring now, the only important induction is whether or not this is a tradeable environment on one’s time frame or not.  Merely because it has yet to reach panic proportions we can not assume anything further then the evidence.  We will not know when it will or how it will realign.  We do not know if there will be a tradeable bounce, a failure and retest of lows, a prolonged period of sideways consolidation, or the reemergence of V-shaped recoveries.

The best that can be done is to foreshadow scenarios and plan and act accordingly based upon our signals and set ups.  Being aware of the confluence of signals that confirm our view or the divergence that negate it and acting upon these perspectives in a probabilistic mind set with proper risk control and pedal to the metal or stop gap measures is what should be strived for when managing uncertainty.