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Selling has accelerated once the $SPX October lows at 840 were taken out. The first wave of selling -- from mid-August into mid-October was a decline
of 35% (from 1300 to 840, roughly). Many analysts
hought that was the bottom because of the historic oversold conditions that existed
at the time. That included a mini-crash of 220 $SPX points in a mere seven trading days,
attributable heavily to the margin calls issued to hedge funds and other leveraged
trading companies.
However, the economic situation has done nothing but get worse, and so an entirely
new bout of selling has taken place. Since the highs at 1007 on election day (November 4th), $SPX has plunged another
260 points, or 26%, since the election of Barack Obama. In just the last five trading days, we've had literally another mini-crash,
with $SPX dropping 18% in a week -- and that may continue, since there was no
sign of a bottom today (Thursday).
This bear has served notice that it is fiercer than anything in recent memory.
$SPX plunged through the lows of the 2002 bear market and is now trading at prices last seen in the spring of 1997. Nearly 12 years of
market gains, including one of the biggest bull markets in history, have been
wiped out. The Dow isn't quite that bad, as it hasn't fallen below the 2002 lows yet.
What I find totally amazing about these events is that the monstrous oversold
conditions of October had little or no effect generating a putrid, weak rally
which was aided heavily by the October Seasonal Bullish period. For new lows to be made and for such heavy selling to take place on the heels
of those October oversold conditions is virtually unthinkable. Last summer, we were totally unimpressed with the July-August rally following
heavily oversold conditions in July. That lead to the huge declines we've had since August. Now,
the rally after October was even worse and the October oversold conditions were
more severe than July's. Does that mean that the November decline -- which we are now in -- will be worse
than the August-October decline? As hard as that might be to believe, it's certainly possible.
None of our indicators is positive, despite promising setups that existed a couple
of weeks ago. It was the $SPX chart that kept us from turning bullish then. Currently, on
the $SPX chart, all the trends are downward, including that of the declining 20-day
moving average.
The equity-only put-call ratios had given confirmed buy signals a few weeks back,
but those have now been canceled -- and sell signals reinstated -- as the ratios
are rising again. As long as they continue to climb, they will remain bearish. It should be noted that they are very high on their charts (i.e., oversold).
Market breadth has been so bad of late that the breadth is historically oversold. But for breadth indicators to actually turn positive would take many days of
improving breadth, with advances leading declines. That
doesn't seem likely to happen soon.
The volatility indices ($VIX and $VXO) have trended higher as the market declines. $VIX would have to fall below 65 in order to violate the current uptrend (see
Figure 4), and even then the longer-term uptrend
would still be in effect.
In summary, all indicators are on sell signals so this bear market remains in
full force. However, all are oversold and some are more oversold than they ever been. Thus, a sharp, but short-lived oversold
rally is certain possible rally. | 
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