Seemed like every week was a ‘green candle’ (up week), and every month was a guaranteed winner for a while there. The investors/traders(?) who for whatever reason were buying each and every dip in the market were being rewarded in spades. It felt like a ‘one way’ market — UP.

That has all changed now.

The market has been straining and creaking lately with the most obvious signs the wild swings in volatility. At one point, today, during the most vicious part of the sell-off, at least a few of the more popular retail trading platforms upped the margin requirements for holding futures positions intra-day.

So what did that mean? It meant that the volatility was too great for the futures broker to feel comfortable letting traders hold ‘normal’ amounts of leverage in their positions.

In fact, the plunge today was recorded as the second largest on record — ever — and it came midday with a total collapse of the bid (anyone who was willing to buy), and after a brief, eye-watering plunge over 100 points down on the s&P and 1000 points down on the dow, snapped back up to just an ‘ordinary’ 3%+ down day.

So, that washed out the weak hands and we’re ready to move higher again, right?

I don’t think so.

As tempting as it might be for those who are bullish the US stock market to think that it’s safe to go back in the water, I would caution that extreme volatility like we’ve seen the last few days is really not the sign of a healthy bull market. It is the sign of what happens at the end of bull markets and at the end of bullish retracements within a larger bear market trend.

It was hard to watch the market action this afternoon and not think that there was a higher power at work providing liquidity to the markets through a favored son (cough cough JP Morgan).

Tinfoil aside, at this point the long held belief that the EU was in deeper doo-doo than even the US is starting to make its way into mainstream consciousness. Despite the attempts to play this decline today off as a glitch at a trading house, or an errant ‘fat fingered’ trade, even a cursory glance at the forex markets would tell you that that is utter b.s.

Huge unwinds were taking place where the Euro was down over 5% against the yen and over 2% against the USD! In one day!

That kind of violence puts anyone with any sort of leverage whatsoever completely out of a trade as even a 20:1 gearing would have your account blown up completely in one trading day (!) And forex is a domain where 50:1 and 100:1 are more the norm.

Anyways, good luck if you are crazy enough to attempt to trade anywhere in and around this kind of violence, and remember, when volatility is infinite, even 1% leverage will get your account zero’ed in a hearbeat.

The recent fubars in Greece and the EU’s predictable response is as good a catalyst as any to get back into the swing of things.

Today looks like it might get interesting.

More commentary at the close.