The Market Goes Kaboom

The Dow Jones Industrials was pounded today, down 345 points and more importantly blasting through key support levels that we discussed in our last update.  Rising jobless claims, faltering retail sales, and talks of deflationary pressures stung the market today.  Another ugly rumor surfaced in the financial sector today around Atticus Capital, a large hedge fund.  There were statements made that Atticus was liquidating some large positions, preparing for failure.

The move we have been patiently waiting for has now begun.  We saw a big pickup in volume today over the past few weeks and the market is telling us it wants to go lower.  While there may be a backtest of this broken trendline, the bear has come back for what looks to be like his final meal.  The chart below tells the story, the 38.2% retracement held Tuesday strong gap up and we broke through what appears to be the neckline of a double head and shoulders top.  This breakdown projects a move back to the lows and possibly a little bit lower. 

Let's review the monthly chart on the Dow to get a little more perspective on the bigger timeframes.  The decline into the July lows hit the 50% retracement from the entire run from March 2003 to the top of 2007.  The shorter term charts we discussed above suggest that a move to test this low is underway and if the market picks up steam near those lows, we may see the boyz jam this market down near the 61.8% retracement level at 10,000.  One step at a time.

The S&P 500 was equally as ugly today.  Notice in our chart below how the SPY is attacking the July 28 lows with much heavier volume.  I think its a matter of time before that gives way.  I will reiterate, I believe a test of 1200 is in the cards shortly.  However, the ultimate bottom should show itself in the 1165 to 1182 area. 

Short term pops aside, this market should head lower into the 9 month cycle bottom and end this bear market.  We want to take a close look at the action at 1200.  This will give us clues as to whether or not the market wants to flush to the downside and provide us with a waterfall decline.  I highly doubt this.  As I mentioned in the past, I wanted to see banking and housing hold up strongly on this decline.  They are doing just that.  The UYG double leveraged etf is significantly off of its lows from back in July even with the market taking a nosedive today.  Continue to watch these divergences to set up.

The last chart I want to take a look at is probably the most important.  Notice how the NYSE has set brand new lows for the year and looks quite ugly.  Energy, Coal, and Gold stocks are adding fuel to the fire.  The DOW and S&P are less exposed to these indices.  We may be seeing a flush in those sectors as well.  Gold bugs beware as there is still more downside ahead.