Can Kicking Time

Here is the return of my favorite bear market feature: the implosion of the day. Support level: zero.

 I had to go out a year on the chart to find some chart support. We are very close to giving back he entire QE2 rally (which is probably why Bernanke dropped another QE3 hint today, resulting in a very short and quite pathetic rally attempt). A few days ago,  thought 1150 was a reasonable target for this decline - we sliced right through it today with no end in sight. Volume is now huge, which typically happens just before a bounce, which could come as soon as tomorrow, especially if we get a big gap down in the morning. Any bounce here could be strong enough to set off short covering, but will not likely last longer than a few days. The market is in danger here of a massive crash (yes, you can call the last few days a crash, but that is just a warm up to what could happen), and I'm not sure a QE3 announcement would be enough to restore confidence.

The Nasdaq, which had been holding up decently, is no longer and the price relative line is headed down, but still in a medium term sideways pattern. That will change if the selling continues. We are bout to get the infamous "death cross", which, during the last two years, has actually signalled the bottom of a bull market correction. I don't think this is a bull market correction.

 

The price relative line on the Dow industrials is going vertical, about as bearish as you can get.  This is near what might be a support level, but with this kind of momentum it probably will not hold, at least at first. Again, I will be looking for a big gap don tomorrow which might reverse.

The Russell 2000 is almost the mirror image of the Dow, at least price relative wise. It is also near a possible support level, but I wouldn't bet in that even with Bernanke's monopoly money.

S&P added some fuel to the fire in the market with their downgrade of U.S. debt (and will undoubtably be scapegoated by the President and Congress), but the real problem here is very simple: in 2009 the Government, aided and abetted by the Federal Reserve, kicked the can down the road. For two years we walked down that road, and now we have come to the can again. This time, it's a whole lot bigger. And it's pissed off. 

I will have the new highs update shortly.