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Mauled by Cyclical Bear?

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Any countertrend rally likely to meet resistance.

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After witnessing the aftermath of yesterday's political catastrophe, it's important to capture the next potential market support levels. In Crystal Ball, my firm referenced a 10-year chart of the S&P 500 and unequivocally stated:

"It's our humble opinion that the 1,150 to 1,160 area for the S&P 500 is crucial to any kind of bullish stance. It's imperative that the line drawn in the sand holds right here on a closing basis.

If, on a closing basis, the market fails at this level -- for whatever reason and God forbid -- look out below. The next level of support in the S&P 500 is 1,045."
Minyanville's Why Wall Street Will Never Be the Same
The market's roughly 9% grievous day yesterday, as you well know, broke the 10-year support level discussed and puts the SPX off 30% from the October 11th high, down 25% YTD. The next support to be found goes back 4 years, to September 2004, around 1,045.


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As my firm discussed in Opportunity?, you should be aware of days like yesterday when searching for a bottom. By looking at the secondary contrarian indicators one can plainly see the sheer panic in the markets: "Lemmings" or selling begets selling. The VIX spiked to its highest level since the 2003 market bottom, the put call ratio reached 1.24, the advance/decline line was 1 to 6.5 and the ARMS Index (TRIN) spiked over 9 intra day.

With the weight of evidence put together, along with yesterday's action, my firm will be very cautiously looking for a point of entrance for a short-term rebound in the markets. However, to be absolutely clear, our stance is that we continue to be in a bear market and a countertrend rally is more than likely to be met with resistance at the downward sloping cyclical bear trend.


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No positions in stocks mentioned,

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