The passing of the Bailout Bill

This has been an unprecedented week in the financial markets. First the House does the right thing by asserting the will of the people and rejecting the Financial Market Bailout Bill. The Dow Jones Industrial Average falls 777 points - the biggest one day point move in history. The House goes on recess. Next the Senate gets a hold of the Bill and adds a ton of "pork" to it in order to purchase "aye" votes for passage. After passing on Wednesday evening in the Senate the index futures sell off and set the market up for another 340 point drop the next day. Back to the House...the "pork" works its magic and the required number of "aye" votes are garnered. The Dow was up 250 points prior to the vote and sold off 400 points closing down 157 on Friday. Glad that's all behind us now.

Now what? Let's step back and look at the big picture ($DJI 10 year monthly):


You can plainly see that just 3 days into the month of October the Dow has penetrated a key (50%) fibo level as well as an uptrending linear regression line. These broken support levels foreshadow a continued bear market that will take the Dow down to the 9900 level in the near term. If that level doesn't hold then we will probably see 9000 and may be looking at a complete retracement of the 2003 - 2008 bull market which would take us to 7250.

How about the S&P 500 ($SPX 10 year monthy)? Take a look:


We blew through the 50% fibo last month and have not looked back in October. The next key level of support is 1075 where the 61.8% fibo and an uptrending linear regression line converge. If that support level fails we could free fall to 925.

Bottom line for me....this is bear market and I will continue to trade it like one. Although the VIX is quite high at 45+, I am not convinced that we have reached capitulation. The ban on short selling will expire next Thursday night and that should bring some sanity back to the market. Ironically, it may be that singleton event that turns this market around. We shall certainly see...