After witnessing the aftermath of yesterdays political catastrophe, its important to capture the next potential market support levels. In the last Jo, “Crystal Ball” we inserted a 10-year chart of the S&P 500 and unequivocally stated:

…it is our humble opinion that the 1,150 to 1,160 area – for the second eldest sister (S&P 500) – is crucial to any kind of bullish stance attempted – NO MESSIN’ AROUND!!!! It is imperative 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.

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 and down 25% YTD. The next support to be found goes back 4 years to September 2004 around 1,045.

That being said, as discussed in our July 29th ‘Jo’ – “Opportunity?”, days like yesterday are the ones to be aware of when searching for a bottom. By looking at the secondary contrarian indicators one can plainly see the sheer panic in the markets. “Lemmings,” 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, we 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 countertrend rally is more than likely to be met with resistance at the downward sloping cyclical bear trend.

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