The Zig Zag Indicator in the 2010 Flash Crash

We look at relative values in the Zig Zag Indicator and use 7.5 points as a threshold for turning points in 2010. Even in the flash crash and the day after the May 2010 flash crash, we only saw 65 turning points using 7.5 points. On January 24, 2022, we saw 75, 50+ point turning points.

In general the market doesn't gradually and linearly adjust to new index levels. The psychology of the participants are still fixated on point values and dollar amounts and adjustments are more of a step function. Digital vs Analog based on market psychology.

Recently there has been more of an exponential adjustment to new index levels along with market moving headlines related to Quantitative Tightening. It is still surprising to me that worries about higher interest rates and QT (quantitative tightening) which have been absorbed over a long period of time have shown higher Zig Zag readings than a Flash Crash or a Pandemic - which are surprise events. If it isn't a surprise event, there is someone more willing to take the other side and be the zag to your zig, increasing the zig zag count.