NEW YORK (TheStreet) -- The stock market appeared to have gone crazy this week, but there actually was a method to its madness.

In fact, stocks followed a familiar pattern of having a huge selloff followed by several days of big swings up and down. Looking at charts -- in what Wall Street calls technical analysis -- helps put the volatility in perspective.

On Monday, when stocks took a breathtaking nosedive, the benchmark Standard & Poor's 500 plunged to a level 12.5% below  its most recent high in May. Any decline of 10% to 20% is called a market correction.

The graph below shows the price action for the S&P 500 in five-minute intervals since last Friday. Usually a correction occurs more gradually. But this week began with a plunge from a close of 1,971.95 on Aug, 21 to a low of 1,867.01 in the first 10 minutes of trading on Monday. That decline of 5.3% was defined as panic selling.

Normally, panic selling is followed by a period of consolidation and a retest of the low, which was the case this week with a low of 1,867.08 at Tuesday's close.

This volatility was followed by a typical stabilization for the remainder of the week with the S&P trading as high as 1,993.48 on Friday morning, erasing the loss for the week.

That isn't unusual, but it doesn't mean that the bull market is still alive.


Courtesy of MetaStock Xenith

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The daily chart for the S&P 500 shows that the 50-day simple moving average will be declining below the 200-day simple moving average in what technicians call a death cross. This pattern indicates that strength for the S&P 500 will stall at or below these declining moving averages over the next week or longer.

The risk is that the average will trend back toward the Monday and Tuesday's lows next week, and potentially to lower lows into October, when seasonal patterns tend to set a market bottom.


Courtesy of MetaStock Xenith

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The weekly chart is negative with the S&P 500 below its key weekly moving average of 2,051.9 and with weekly momentum declining to a reading of 41.40 this week down from 45.80 last Friday.


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The risk is that the S&P 500 can fall into bear-market territory as early as October with a decline of at least 20%. If the S&P were to fall to my key level on technical charts of 1,558.2, the decline would be 27% from the all-time high.

This article is commentary by an independent contributor.