Three Times is Not a Charm [4:22m]: Play Now | Play in Popup | Download (230)

I’ve always tried to be a straight shooter, tell it like it is. And sure, I find it fun to mix a little irreverent humor in with the story, to liven it up a bit, and break down communications barriers. But I’d be hard pressed to find any humor in what I’m going to report today (Thursday Nov 20). I want to start off by saying that there’s going to be a lot of people hurting soon, either from layoffs, or lost fortunes, or both. And those of you that are protected should do what’s best for you and your family first, but don’t forget about those who are less fortunate and unable to make it without some assistance.

Well, here’s the situation. In the past week the markets twice tested the triangle trend line support that virtually every index has been moving in for the past 6-8 weeks. And both times the markets recovered nicely, showing good strength and some hope that the Bulls had something left to fight off the Bears. The first time was a week ago when we were in free fall, hitting 818 mid-session, then with a spectacular second half rally, we finished the session over 900. Then Tuesday (Nov 18th) the markets were tired, as they steadily dropped for most of the day, right into the last hour of the session, touching 826. Then out of nowhere we had a spontaneous rally which cleared critical support of 850 and plotted a bullish hammer. The technicals ended up looking pretty good, as positive divergences and extreme oversold conditions set the stage for a continued rally. The market had successfully beat impending disaster twice.

Wednesday (Nov 19th) we opened neutral and started an early surge, but when the auto industry hearings got going, investors quickly got a whiff that it may be some time before the auto execs see any of that $700 billion bailout package. You could feel it in the air as fear and uncertainty started to build, the VIX (the Fear Index) was climbing and the S&P steadily moved below 850, then 839, then below previous lows, where the Bears apparently tried to dig in and defend this level. Then with an hour left in the session, the Bulls simply ran out of gas, they could no longer hang on, as they simply handed control over to the Bears, and they summarily took the markets down hard, in full breakdown mode on massive volume.

So, what does all this mean? We have a massive breakdown on every index on huge volume. We’ve lost critical support and the mid and long-term MACDs are pointing straight down, and the near-term, 60 minute and 15 minute charts, those MACDs have crossed over to the downside as well. That’s confirming indicators in all time frames. Folks, we’re heading for the 2002 lows. That would be 775 on the S&P and it looks like we’ll have no problem getting there. My concern is that if we lose that level, then the next level of support isn’t until the 61.2% retracement of this entire bear market. If you recall I illustrated that point in the podcast titled Going to Hell and Back, where I said that level on the S&P was 666. I see a definite possibility of us getting to hell, hopefully there’s a life line, because if we stay there too long, then we’ll all get burned.