Sunday (August 17) night I was reflecting on what a beautiful first week I had just spent on the Vineyard with my family, and what a high it was. I wanted it to go on for ever. Just one more week, I thought. That second week always goes way too fast. How will we spend that time, what will we do to make it special, memorable? The weather forecast looked great for the coming week, the prospects were delightful. Then, knowing I had to switch gears and produce a story for the blog, I turned to the market charts. It hit me, this rally we’ve been enjoying since the June lows was coming to an apex as well, a point of transition that deserved contemplation. But the forecast did not look nearly as rosy as my vacation. So I wrote a post saying that we needed an intermission to evaluate the direction it might take. I declared this time for reflection because a breakdown, an end to the nearly two month uptrend, was becoming a growing possibility.

Monday’s action showed the first cracks. We had broken critical support levels, not a full breakdown mind you, but a significant event none the less. From there it became apparent to me the direction the market had chosen, so I wrote as much in my Monday evening post. Then Tuesday, that fateful Tuesday, those rising wedges finally collapsed under their own weight. Every index broke down leaving what was once critical support in the dust, a distant memory. I don’t know any simpler way to say it, but the rally is over.

So what was the catalyst? I think that’s obvious, it was financials. I truly believe until one of the biggies falls and is wiped off the face of the Earth, this market will not be able to get a foot hold. The financials have become this huge weight, an open sore, that simply will not heal. Will it be Fannie or Freddie? Perhaps it will be the venerable Goldman Sachs (GS) or Lehman Brothers (LEH)? I don’t know. But I feel one of these big guys is getting setup for the fall. And once it does, it will hurt. But the monkey will be off our backs and we can move on.

Yesterdays market internals were a mess. Decliners led advancers on both the NYSE and the Naz by a 7 to 3 margin. And the Put-call ratio was 1.13. Fear is starting to crank again. And virtually every market joined in the defeat, except for Energy and Agriculture, that section of commodities that have been the nemesis of the rest of the market. But I believe their strength was simply a reaction to being so oversold, they had to bounce show a reflexive bounce. World demand for Oil is dwindling, that is why it is in free fall, and it will continue. their are many respected  Oi; pundits that are saying sub $100 a barrel Oil is in out near future. I think $70 a barrel is what we’ll see in good time, probably well before the end of 2009.

So, what about AAPL? Well before yesterdays session I had predicted that Apple would be resilient to the coming selloff, but ultimately it would not be able to hold the Tech sector up all on its own. And AAPL did show some strength in the first part of the session, unlike the other Horsemen that simply declined from the start of the session. But AAPL couldn’t hold on, and when the Big Guys came back from their late lunches, they took AAPL dow too. In yesterday’s post I had said AAPL would have support at it’s 50-day moving average. It almost made it to that point before the selling pressure had peaked and it finally rebounded in the last half hour.

Well, what about today (Wednesday, August 20 2008)? The selloff was massive. The indices are extremely oversold, as is AAPL. But take heed, we have started a new downtrend. I believe we’ll get a good bounce, but from there the momentum is down, and there will be plenty of room to move down once we’ve reset the oscillators. So, I expect a bounce in the morning followed by continued selling. I don’t know if that selling will commence today, or if it will start tomorrow, but I’m confident it will be sooner than later.

AAPL has resistance at 175, but good support at 170.50. The S&P has strong resistance at 1290, the breakthrough point, don’t expect the bounce to recapture that. And support for the S&P comes in at 1235, then the bottom at 1200. The Naz resistance is at 2426 and 2450, and resistance on the Dow is at 11,550.

So, what does the feature picture have to do with the story? Nothing really, other than that’s where I’ll be today and tomorrow with the family, and most likely every sunny day remaining in this week before we have to head home. It’s an iPhone screen shot of where we usually park ourselves on Gay Head beach in Aquinnah on Martha’s Vineyard. Below are some more pictures from the past couple of days.

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