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As grade-school students, we were taught that the Earth's crust sits upon a series of tectonic plates which float independently on the Earth's mantle. The boundaries of these tectonic plates, called faults, are where most of our planet's seismic activity takes place.
Perhaps the most famous fault line in the world is the San Andreas Fault in California. It's classified as a transform fault, meaning the two tectonic plates are grinding past one another in opposite directions. When the plates shift, a large amount of rock-mass displacement releases an incredible amount of energy, which we experience on the surface in the form of earthquakes. While not nearly as earth-shattering as convergent faults (tectonic plates that collide), the people of southern California will tell you that when those plates grind against one another, the resulting earthquakes can be incredibly jolting.
With the market reversing course seemingly with every new headline, we've been experiencing our own kind of seismic activity recently. A series of external market events, both positive and negative, have created a fault line straight down Wall Street. As a result, investors have felt the shock waves – in fact, recent charts of the broader markets have looked a lot like a seismograph reading.
However, the 210-point trading range in the S&P 500 is still intact.
Interestingly, there are some fairly consistent ways to judge when program-trading "buy" programs kick in, and there was a cluster of them right around the very important 2,600 level in the S&P that I've been talking about for some time (and that we can see as the lower dotted line in the chart above).
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Monday's reversal from a big down morning to a strong tech-led rebound was triggered by British Prime Minister Theresa May's prudent postponement of the vote on Brexit. And it's that sort of headline-driven move that is sending the market whipping up and down, up and down – sometimes all in the same day.
And the reason we have these wide swings is that external market forces are more balanced than they've been in years. Here's a list of both the bullish and bearish influences that are hitting markets; though far from comprehensive, this rundown is fairly representative:
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.