Where we really are in the market...

It feels like we've been brutally selling off since the market started trading this year..especially if you've been watching news, reading market commentary, etc.  I've had people that don't have anything to with the market, except for a $10k roth ira, start talking to me about the awfulness of the market and the price of oil. My gut feeling is that we've probably already seen the short term bottom or are very likely to it..both in oil and equities.

Take a look at this chart:

We are basically in the same zone that we were in after the post August sell off.  We basically sold to the same levels, it just took several weeks to accomplish rather than a couple of days like in August.  So why are people freaking out so much and why are they so certain that we're entering a bear market?  This is what I've been asking myself.  The answer is probably that we just haven't had much volatility over the last few years and there hasn't been that much to be concerned about.  Now we have oil crashing, china imploding, rates rising, and a war in the middle east that America and Europe are not really talking about or calling a war.  While I think we have seen a regime shift in the market and we will probably stay in an elevated volatility environment, I doubt that we're entering a big bear market..unless we have a huge market impacting event (terrorist attack, china actually implodes, sovereign default, etc.).  Short of any of those scenarios, I think we just see bigger chop in a bigger range.

Another chart worth looking at is a VIX chart with the ATR indicator.  The ATR of the VIX is basically the volatility of volatility, and this chart shows that a regime change has been in place since late August (the on going higher ATR levels) and it shows that a short term bottom might be in place (the blue circle showing the only significant decrease in the VIX's atr that we've seen this month).

So where is the market really at?  Probably in a big choppy range.  What am I looking for going forward?  I'm watching the zones in the SPY chart above..if we trade below the August/January lows, then we're probably going to see higher volatility and more of a sell off.  If we don't see new lows, then we'll probably drift up and down between the highs and lows of the zone until we clearly trade out of the zone.

Just note that active trading in a higher volatility environment is different than we've seen for several years.  Moves up and down reverse much faster and day to day follow through is limited.  While this presents great opportunities for nimble short term traders, it can be devastating for traders that are anticipating that their older trading patterns will still work.

Stay nimble and alert.

George