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End of Day Update:

Today’s trade is one for the history books. Those of us paying attention witnessed the highest volume for equities in nearly three-years and it’s been more than 10-years since as many Treasuries changed hands in a single day. But this extreme volume only hints at what a wild ride prices went on. The S&P500 traveled nearly 150-points through the day starting with the opening plunge and subsequent bounce, but that was only the opening act for the gigantic midday collapse and just as impressive ricochet from those lows.

In this case, ignorance was definitely bliss because anyone paying attention was horrified by these whipsaws. Nearly twice the average daily volume means a lot of traders reacted to these moves and in an environment like this, most would be hard pressed to claim their trading decisions were cool, calm, and collected.

While I prematurely called a capitulation bottom a few days ago, if today’s whipsaw day on historic volume doesn’t fit the definition of a capitulation bottom, then I don’t know what one is. If any stock owners didn’t sell today’s weakness, then there is little that can be done to shake them free. Whether ignorance or stubbornness, if these guys won’t sell today’s move, I don’t know what will. But ultimately that is constructive for markets because selloffs end when we run out of sellers.

But if trading were this obvious, everyone would be rich and we all know that is not the case. There is nothing more contagious than fear and recent weakness is turning confident owners into fearful sellers. Another rout of today’s magnitude would set off a whole new wave of selling and once panic sets in, it is very hard to contain. While I’m constructive on Wednesday’s intraday reversal, we need to see it stick. If it doesn’t hold, all bets are off. A bold trade would be buying this dip with a stop under the intraday lows. Shorts should consider locking in profits if we don’t make new lows on Thursday. And as always, long-term investors should embrace these dips by adding to their favorite positions at a discount.

Jani