The past couple of weeks have been pretty crazy in the market, with the broad indexes plunging, advancing, plunging and advancing again.

I grew up spending my summers at Zuma Beach, just north of Malibu near Los Angeles, and the past two weeks in the market have felt just like a really heavy set of waves at the beach. Those waves are a lot of fun while they're happening if you know how to ride them either with a surfboard or as a body-surfer, but they're scary and dangerous if you're a newcomer and are just getting tossed around.

Fortunately, we are no more a stranger to volatility waves than to ocean waves. And right now, there is no reason to worry. Sharp, fast declines that occur when a market is near a top are more likely to mark the end of a correction rather than the start of new bear market.
Corrections are absolutely normal and healthy during even the strongest markets. The greatest recent example that I can give you is 1999. That year, the NASDAQ 100 (NDX) rose 101% from January 1 to December 31. But also during that year, it suffered four separate 10% setbacks. It was wild and scary for many people, but each of those corrections proved to be a fantastic buying opportunity.

It's fascinating to me that the latest correction generated so much concern among investors. From top to bottom, it was just a 3% drop. But the McClellan Oscillator fell to a level that signals investors were in a total panic. The McClellan Oscillator essentially measures the intensity of changes in market liquidity through the prism of advance/decline statistics. When a lot more stocks are going down than going up, and that happens over a short period of time, the McClellan Oscillator falls materially. Any decline below -100 is something you should pay attention to, but when it falls below -250, it's typically a big event. The -259 registered recently was the third lowest of the past year.

Tom McClellan, whose parents invented the indicator back in the mid-1960s, says that oversold conditions as severe as this one "tend to be terminal," which means it establishes a floor for prices and should serve as a catapult for higher prices.

This suggests to me that the current phase of the bull market still has a lot of room to run, as investors are in anything but an overly euphoric mood.