The markets have effectively been dismantled in recent months and maimed so far in 2008. In these times traders start to show their aggravation or confusion, but for some traders, these bearish events are cleansing. They can wash out amateurs and coronate veterans. So which are you? When the markets are in such disarray our readers want to hear the usual; Why now? When is the bottom? And of course we oblige (to our subscribers). In this week we saw strong elements of change. From technical analysis we observed the VIX, Equity Put Call and RYDEX ratios spike to record extremes. Yesterday the VIX closed above 30. And, with the Fed Chairman, the President and Congress all in apparent agreement we just may have a recipe for change!

I used to live in Washington and let's just say it is more apparent on K Street than Main Street that the government was divided. You can see colleagues hedging their careers much like we hedge our portfolios-methodically and without emotion. The recent stock market volatility is cultivating some rare events that may be signals of where our economy is going. I've noticed a few events that may signal the end to this mayhem. For example, we'll look at our sentiment indicators, which are at extremes, some fundamental data from the Fed suggesting an end to the economic slowdown and finally, a look at a pattern for years that end in 8-are they more likely to see growth than others?

For subscribers to all our products we provide daily research into three sentiment indicators; the CBOE Volatility Index, the RYDEX Ratio, and the Equity Put/Call Ratio. Essentially, these indicators help determine broad market movements before they happen based on relative extremes. Last week we observed each indicator fall/rise further into extremes. Yesterday, the VIX reached 37.5 intraday and closed above 30 reaching levels mostly seen prior to reversals. Additionally, the Equity Put/Call ratio tracks only the put and calls on equity clearly defining the markets sentiment. Last Tuesday we reached 1.05 meaning more puts were being bought than calls. What this data suggests is clear; the market is at extremes right now and the more extreme it becomes the more likely it is to reverse.

From a fundamental perspective, the Philadelphia Federal Reserve releases manufacturing data once a month depicting the purchasing activity of manufacturing managers. For January it was -20.9, and consequently, the sellers used this as motivation last Thursday, but I wanted to see more. The most recent release by the Philadelphia Fed was the lowest manufacturing number since October 2001, an important date. The last recession transpired over 8 months, March-November 2001. Fundamental data is often lagging so my question is, if we are in a recession does this number support that we are passed the worst and on our way to recovery? If the pattern continued we would not only be in a recession right now, but we would be out of the recession in another month.

Another interesting pattern that was brought to our attention from a coaching student includes a positive growth pattern with years that end in 8. It sounded like a coincidence, but I took a look at the data, after all a pattern is a pattern, right. The SP500 was created in 1957 and since then there have been five years ending in 8. All are positive. Not interesting yet? We're all aware of the January Effect and the idea that so goes January so goes the rest of the year, well not in these years. In 1978, 1988, 1998 negative performance in January translated to positive gains in those same years. The pattern may need more time to be verified, but it is appealing.

While the market tries to piece itself together we're trying to gauge where it will go in the next few weeks and months. After the global market panic on Monday we saw a possible light at the end of the tunnel. As investor sentiment continues to reach record extremes the market approaches its breaking point. Historically, we're more likely to see a reversal at such extremes rather than a continual radicalization of sentiment.

Price Headley is the founder and chief analyst of BigTrends.com.