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The circle on the left shows that high volume area that prices dipped back into today signalling a market test.

After a day of panic in the markets and a huge drop to go with it, the markets stabilized and finished flat after falling midday.  This movement would be classified as a market test and should signal a point where the smart money is determining the supply and demand levels in the markets.

Here is the definition from Tom Williams of TradeGuider (known for volume spread analysis):

A test is a term used when professionals move prices lower to see how much selling pressure really exists in the market. Any testing that does not respond immediately with higher prices, or certainly during the next day or so, can be considered an indication of weakness. If it were a true sign of strength, the specialists or market makers would have stepped in and would be buying the market – the result of this professional support would be the beginnings of an upward trending market.

So far, the test looks bullish as prices finished near the top of the range, but we won’t truly know until the close tomorrow. If prices rise tomorrow, especially on increased volume, higher prices should be expected. If we don’t get the bounce higher, expect stocks to fall.

One of the best things you can do as an investor now is sit tight and don’t panic. A lot of strong words were thrown around yesterday but the bottom line is the money will flow to the markets if things get worse as it is rather liquid, one of the only places you could get a decent rate of return (especially with dividend stocks) compared to treasuries and savings accounts, and could benefit from another round of federal funding, QE3.