What you are looking at is a chart of the DOW from 2018.

It’s important, because this is the last time, excluding the 2020 covid crash, that the VIX spiked up and the stock market had a flash crash.

In 2018, it was linked to a malfunction in VIX short ETF’s.

People made massive bets in those ETF’s that suddenly reversed.

What I want you to note is that after the initial big drop in the DOW it jumped back up and then retested its lows a few months later.

The VIX went up around 40 on the spike and didn’t get below 20 and stay below it for eight weeks.

There was a lot of market up and down meaningless swings.

Something, like that could happen again, and if it does don’t be shocked, and don’t be scared.

It’s how this plays out over months that will matter.

Is the economy really slowing down?

Jim Cramer on CNBC Monday morning said nothing is wrong with the US stock market and it only fell because Japan crashed before the US open.

They are linking that crash to a problem in the yen carry trade.

However, US Treasury bond yields plunged too, which suggests that it is more than just stuff outside the United States influencing market action.

People on CNBC would not be demanding interest rate cuts otherwise.

And Jim Cramer is one of them too.

By the way, once the rally in 2018 stalled out at the end of October the stock market fell into the end of the year for a roughly 20% decline in the S&P 500.

I am not too worried about big drops in the short-term that would take the market very much further below the lows set Monday if that happens.

It’s how this all trades out in the coming months, towards the end of the year, that we will have to keep our eyes on.

No “AI” was used to write this email or edit it.

And…..

Another time in which the DOW fell suddenly 10% off of a high in days was August in 2007.

The VIX spiked then too and the market jumped and then traded very volatile for a few weeks into the start of September.

The Federal Reserve began to lower rates that month and then the market rallied and peaked in October and began a bear market by the end of that year.

That August 2007 drop was part of a stage three topping process, which was obvious in a decline in the internals as the market rallied in to a minor new high in October.

-Mike

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