The Dow Jones world index sank to new lows along with the Baltic dry index and the European banks today. The NYSE has broken below the July lows as of today. It looks like Cramer was wrong when he said the July 15 low was the bottom. I think most of us knew he must be wrong because there was so much still to unwind. The Nasdaq was the biggest percent drop of the major indexes and fell below support so the CNBC talkers kept saying Tech was the place to be and it looks like the economy is going to impact them just as much as the other sectors. Silver has now broken to new closing lows and gold may soon follow. Semis were down 3.4% today and it looks like a huge decline may be approaching with the possibility that it could go below the 2002 lows. When we get a big down day like today, the market tends to rally weakly for a day or two.

I set up this scenario to suggest a trading opportunity in the next few days if I am right to buy bear market etfs. The top ten today were
rtw, fxp, rfn, smn, tll, skf, eev, ssg, sij, and skk with an average gain of 8% today on a 350 point loss day. As you all know, if the market goes up in the next few days, these will go down and give you the opportunity to buy at a better price. I suggest you set up a portfolio on these top 10 to monitor in the next few days. You can also do the following to find bear market etf's::

-go to screener, click on industry and drop down the menu to etf's. Click on performance and than the price percent gain for the day until they are green. You now have the biggest gain etfs starting with the biggest percent for the day. Of course if the market is up for the day you are looking, you won't see the best bear etfs. They will appear on down days. If you are reading this in the next few days or weeks and I am right that the market is going lower, you can sort the above screen for the week to see the best ones over a longer period of time. I have been out of the market for a month waiting for this day and I believe we have a large opportunity to make more money faster across a wide group of sectors. I posted all the bear market etf's previously in stock tips on 7/8.

Here are some warnings for you:

-the market turns quickly and these etf's can be up 10% in the morning and turn down just as much in the afternoon.
-if I am right and the market continues lower after a small bounce, it may trade lower for only a few days or a week. The upside to the following rally will probably be large and fast
-if good economic news or the Fed makes an announcement that they are doing something dramatic, you will get smashed into the red. Remember what happened on 7/15 when financials and the market took off and all the shorts got massacred.

I suggest if you agree that there may be an opportunity here, you start with small dollars and you go in knowing you could lose 10% or more in a day. You need some stops that will frustrate you when they sell and reverse higher, but you will be preserving capital which is rule number 1. May we all make money faster.

It sure does look like we're taking another turn for the worse by the charts. And Art Cashin (who is my favorite CNBC Commentator) said something today that was really negative. He has over 34 years in the market, and he's usually right I've noticed. When Art talks, I listen. He said:

Quote:

"After Thursday's 344 point drop and a lackluster Friday, next Monday can be a day of complete capitulation with Tuesday spiking down to set a new bottom".

I've never noticed something like this in my 15 years of watching the market, but it's something he's probably seen a number of times before. Even though Friday's candlestick was a 'Hammer' which can signal a reversal, the lower Bollinger Band on the Dow's chart is already starting to move lower. The VIX is nowhere near 30 yet, but if Art is right it may get there early next week. The News this week has been mostly negative, which gives me little reason to believe we are ready to rally again.

My chart analysis shows a number of Indicators that show we are not at a bottom yet, and the chart pattern for the last two months has turned bearish. It's almost certain in my opinion that we will go down to test the July 15th lows if the last two support levels fail on a closing basis. IF the Dow closes below 10950 I'll be shorting the Diamonds (DIA) until the RSI drops below 30, and will cover if it tries to get back above it. Stochastics dropping below 20 and then trying to break above it will be another signal to cover. If the VIX gets to 30 that's another sign we are about to bottom.






The weekly chart is looking mostly Bearish:




Happy Trading,
zz

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www.stock-market-lessons.com

stockman,

No, I didn't see the news release about the FED bailing out Fannie and Freddie after the close on Friday.
I see it now, and here's the article:
http://finance.yahoo.com/tech-ticker/article/54394/Report-Treasury-Will-Inject-Capital-Into-Fannie-Freddie?tickers=FNM,FRE,MS,XLF,^DJI,^GSPC
It's interesting to read the comments below the article.

If I had seen this news before I posted the charts above, it probably wouldn't have influenced my conclusions too much. If you remember when the bailouts for Ambac and MBNA happened, the market rallied only a few days before continuing much lower. I won't get 'political' here and describe how I 'feel' about the government having to bail out financial institutions that have gotten themselves into trouble by practicing bad business practices, other than I don't like it or agree with it.

You're right that IF this bailout happens before the bell on Monday, the market will probably rally for a few days, and then reality will set back in. Until the charts tell me the Bear market is over, I'll stick to my prediction of lower lows between now and the end of October. The Fundamentals of the market are still weak, and we won't enter another Bull market until the Financial Sector gets it act together and finishes with ALL of the writeoffs, the Housing Sector finally bottoms, the price of Crude holds steady here or declines, and Earnings start to improve. I think the 3rd Quarter Earnings will come in weaker than previously expected, and most predictions call for things to start improving late in the second half of 2009.

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www.stock-market-lessons.com

The charts do look bad. However, if a bail out happens then the charts don't matter if we have a mother of a short squeeze Monday. Then everyone will say we tested and held July lows.

Really just shows you can get too long or too short with any comfort. Entry day trades only thing working.

Looks like my scenario is correct.

Freddie and Fannie were bailed out and stock futures are up HUGE on Sunday afternoon. Dow up over 235. Big short squeeze on Monday.

Charts might be right back to our trading range again.