The stock markets are finally operating in a more logical manner

Finally, the stock markets are operating in a more logical manner. However, volatility levels remain tremendously high and are still a very dangerous element.

It could be difficult to defend the idea that markets are operating in a logical manner with volatility levels at record highs. However, my basis for this statement is that the markets are finally reacting to fundamental economic and policy news. Central banks and governments appear to have finally gotten ahead of the curve. The markets are no longer discounting possible measures for the financial crisis before they happen, they are reacting on analysis of their effectiveness. The governments have finally stopped going after damaged entities in a singular fashion but have started implementing systematic solutions. An additional coordinated rate cut right now could have that “surprise” element that tends to help the markets in the short-term. As I suspected would happen after eight straight losing sessions and a sharp decline to the bottom of 7,800 on the Dow Jones, Monday, Oct. 13 was the first gain in October. It is likely that the bottom has been reached on Friday, Oct. 10, at least for the short-term. The bearish trend could easily resume to form new bottoms but it would be in a more orderly fashion and it would depend on the size of this recession and subsequent corporate earnings. This would be a much healthier way than the 10% daily declines that can cause panic and crashes. To be sure that we do not go back to those days, we first need to see volatility ease down.