That sounds like a limbo contest but I’m serious. The Standard and Poors 500 index (SPX) gapped open even further than yesterday’s huge gap opening to drop another 322 points, closing at 5,074, down six percent. That puts the correction at -17.5% since the high on 2/19. SPX opened the week at 5528, resulting a loss of 8.2% for the week. Trading volume spiked up over six billion shares today, almost twice the 50-day moving average (dma) at 3.4 billion shares. To put that volume in perspective, today’s trading volume almost reached the level set two weeks ago for quadruple witching.

VIX, the volatility index for the S&P 500 options, spiked even higher today, closing at 45.3%, up 15 points or 51%. VIX opened the week at 24% but spiked higher yesterday and spiked even further today.

I track the Russell 2000 index with the IWM ETF, which closed today at 181, down 8.5 points or -4.5%. IWM opened the week at 197, chalking up a loss  of 8.1% for the week. IWM’s trading volume spiked up to 93 million shares, dwarfing both the 50 dma at 30 million shares and quadruple witching on 3/21 at 39 million shares.

The NASDAQ Composite index closed today at 15,588, down 963 points or 
-5.8%. NASDAQ opened the week at 17,045, setting a weekly loss of 8.5%. NASDAQ’s trading volume spiked to eleven billion shares today, well in excess of  the 50 dma at 7.8 billion shares. Today’s trading volume even beat the record 8.8 billion shares set on quadruple witching Friday, March 21.

Two weeks ago, we were talking about the ten percent correction in the market, but we didn’t have a clue of how bad it could become. At this point, I am not only shocked at the magnitude of this market sell off, but worse, I don’t have a clue where this decline will finally end.

Traditionally, technical analysts look for a spike in trading volume as the market nears its ultimate low. This known as capitulation and tends to take place near the end of a market cycle when investors effectively throw in the towel and exit the market at a loss. The large declines yesterday and today on consecutively larger trading volume may be the signs of capitulation. The hope is that this signals that the bottom is near.
 
I use the Follow Through Day methodology developed by Investors Business Daily to determine when it is safe to begin to re-enter the market after a correction. The first thing we are watching for is a strong bullish day on a broad market index like SPX or NASDAQ. That day would be the Day One of the Follow Through Day methodology. The bullish day of 3/31 appeared to fit the criteria of Day One. The day count then continues as long as the intraday low of day one isn’t broken. That low of 3/31 at 5489 was broken yesterday, so the search for Day One continues. The purpose of this follow through day methodology is to prevent our jumping back into the market just in time for the next leg of the downtrend.

Being largely in cash and waiting to reenter the market can be difficult. Be patient.

It isn’t for everyone, but I have found that trading the zero dte options of the S&P 500 index works quite well on these otherwise dismal market days. It requires quick entry and exit, taking your profits and then being stress-free with 100% cash overnight.

I booked a 33% gain today. If you are interested in following my zero dte trading, take a look.