I feel like I’ve become a broken record lately. Once again, Thursday was a day of indecision as the market struggled to hold on to big gains. The last five trading sessions illustrated this worrisome pattern with a series of lower-session high points. Three saw the intraday peak reached right at noon before the unraveling began. This suggests that smart investors may be selling into rallies rather than buying the dips.

This is a learned behavior of an overly emotional market that has become like Pavlov’s dog – investors have been conditioned to sell once the intraday rally stalls. But it doesn’t take long for that selling to snowball as would-be buyers remain reluctant.

The Dow Jones Industrial Average chart is compelling. As you can see, a double bottom and reverse head and shoulders have formed, both of which are bullish chart patterns.

Even before these gyrations morphed from hundred-point reversals on the Dow to 500- and even 1,000-point moves, I had called this a shakeout period. The wilder the market becomes, the more uncertainty grows, and even strong hands could wilt into feet of clay.

So stay focused on the fundamental underpinnings of the economy, which center on the revival of big business investments and increased consumer spending. The economic trends are only getting stronger.

The Fed to the Rescue

Wall Street keeps putting the blame for the recent broad weakness on the Fed, which explains why its members have fought hard to promote calm this week. Yesterday, two voting members of the Federal Open Market Committee (FOMC) got in on the action, and I think their comments helped.

Federal Reserve Governor Randal Quarles explicitly said he sees three gradual rate hikes handicapping a fourth at 30%. And Atlanta Fed President Raphael Bostic put the need for rate hikes in the proper perspective: “After years of emergency-era monetary policy, the Fed is in an increasing-rate environment amid a carefully-calibrated return to more normal Fed footing.”

Bostic went on to say that banks have anticipated the increase in rates and are really excited about the prospects of higher returns.

The simple fact is that everyone has anticipated the increase in rates and reduction of the Fed’s balance sheet, but now is the moment of truth and some people are panicking. The important takeaway is that this will be good over the long term.