Questions about panic

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The markets have experienced substantial declines lately, and some aspects of the sell-off appear to be unprecedented. The evening news suggests that the Nekkei index is down 9%, hinting at another sharp downward move in the U.S. averages tomorrow. Such action seems to be causing real financial damage to a great many people. As a side point, VIX is one measure of market volatility, and it has advanced to previously unseen levels. All of this may suggest a rising level of fear (perhaps approaching panic?) in the markets. In addition, the potential bankruptcy of the nation of Iceland seems to weigh on investors’ minds.

Markets sometimes experience capitulation. Investors sell without regard to value. They are, in a very real sense, irrationally fearful. After that, everyone who is going to sell has done so, and a few investors with cash reserves look around and see great values. They buy, the markets drift upward, and a new bull strolls in from the ashes.

So, capitulation seems a lot like panic. I have not had the opportunity to observe panic; but I suspect many members of this virtual community have. If appropriate, I would like to explore panic.

My purpose in asking the question is an attempt to discern signs of a turn in the market. Predicting the bottom of a bear market is hazardous, but if one can identify the transition there are some considerable benefits.

Is there some sort of personal or group behavior that precedes panic? What does a leader do to prevent panic, or interrupt the progression toward panic? Once a group succumbs to panic, how does the behavior pattern end? How do people behave after the panic, and how do they regard their behavior during panic?

Any thoughts are appreciated.