So what do the markets do from here? Nobody knows. However, I did look back at historical time periods when the S&P 500 had similar moves to Monday. In doing this I came upon a report by Ari Wald, Chief Technical Strategist from Oppenheimer.
Wald sees the market following the 2011 road map and expects a similar three-stage process: a high-intensity low like yesterday, followed by a relief rally, then another low point reached with lesser intensity. That low-intensity low would "be a sign that selling is abating, a base has sufficiently developed, and that the broad market is ready to inflect higher."
The chart below shows what Wald is referring to:
History doesn’t always repeat itself, but this would be a very normal pattern to watch for.
On a final note, I expect that volatility will continue into the Fall but more on that in my next note…