UPDATE: What technical analysts say about the stock-market collapse after the Dow, S&P 500 fall into correction

02/11/18 09:51 PM EST

By Mark DeCambre, MarketWatch

Volatility has resurfaced with a vengeance

After more whipsaw price action on Friday that saw the main stock-market indexes register their worst weekly performances two years, chart watchers are hunting for clues to where the market goes next.

The short answer is that many aren't certain that there are sufficient signs that a bottom has been put in yet. In other words, there may be more pain for Wall Street because the swiftness of the slide for the Dow Jones Industrial Average and the S&P 500 index , which entered in to correction territory--typically characterized as decline from a recent peak of at least 10%--on Thursday.

Read: History suggests the correction isn't near over, as this chart demonstrates (http://www.marketwatch.com/story/history-suggests-the-correction-isnt-near-over-as-this-chart-demonstrates-2018-02-09)

The Dow's 10% decline was its fourth-fastest from an all-time high since 1897, according to SentimenTrader, while the S&P 500's move from all-time high to correction was the fastest on record, according to Ryan Detrick of LPL Research.

See:This stock-market shakeout looks a lot like 1996-97 (http://www.marketwatch.com/story/this-stock-market-shakeout-looks-a-lot-like-1996-97-in-one-chart-2018-02-09)

For the week, the Dow and S&P 500 recorded their worst weekly drops since January 2016, while the Nasdaq Composite Index recorded its sharpest weekly collapse since February 2016.

Strap in for the ride

As of Thursday's close, the [S&P 500] was down 8.5% over the last five days. That's the worst five day move since Aug. 25, 2015. Over the last three decades, down moves this swift have been rare. We can categorize the past occurrences into two distinct groups. Those happening in the midst of uptrends and those taking place in the throes of a long-term, faltering tape. 
The 2015 edition was the first 10% drop in over three years when it happened. While a second, harsher, round of plummeting prices popped up a few months later, the 2016 low spawned a two year rally. 
The 2007-2009 period produced a similar scenario -- the worst days eventually led to an epic turnaround, but not before wreaking havoc on the financial world first. 

Better days ahead?

Bearish for Friday and potentially Monday, but feel that stabilization is more likely than a crash. One thing to note, SPX cash has broken early week lows, while futures have held above, which I view as positive divergence that suggests the lows could be nearing within 2-3 days. Look to cover shorts and buy near prior futures lows of 2529, with undercuts likely proving minor on this first go-around. 

Check out:What this stock-market shakeout has in common with 1996-97 (http://www.marketwatch.com/story/this-stock-market-shakeout-looks-a-lot-like-1996-97-in-one-chart-2018-02-09)

-Mark DeCambre; 415-439-6400; AskNewswires@dowjones.com

 

(END) Dow Jones Newswires

02-11-18 2151ET

Copyright (c) 2018 Dow Jones & Company, Inc.