After yesterday’s discussion of the ‘all important’ inflection point, we thought it prudent to address the ending results and what this may potentially mean for the remainder of 2008. First of all, there is a lot of technical significance placed on what transpired. When we put out the report – at noon – the Four Sisters were just heading down to their lows of the day and the S&P 500 (SPX) cut through the old reaction lows of 840. I must say, it looked pretty dismal. {See Below – A 60 minute intra-day chart for one month}

The prior chart, in reality, does not do justice to the actual intra-day breakdown through the past lows set on October 10th – exactly 1-year from the market’s peak close at 1,565. Yet, as market technicians we did realized many bottoms are formed with an undercut of the lows. The trick is to determine if it’s going to reverse back up or continue the downward slide.

This is where the ‘Declining Wedge’ formation gave us our “Oh Crap” level – otherwise known as the shakeout stopping point. After the original breakout on 10/28 – discussed in the last ‘Jo,’ – the market hit resistance at 1,007; markets hate round numbers. As the market tumbled from the November 4th high we waited for the “retest confirmation.” The confirmation came like Santa down the chimney – an Outside (Bullish Engulfing) Key Reversal Day.

There’s been a lot of talk over the last 24 hours about what happened. What we really need to be focused on is what this means and where we may potentially go from here. The following 1-year chart of the SPX depicts the possibilities. Here we show the 2 downward trend lines since the October 11th peak (Red). What is important is the second downward sloping red line that converges with a horizontal resistance around the SPX level of 1,160 to 1,170.

The next important visual is the prior resistance discussed; the November 4th high of 1,007 and the next major horizontal resistance. With yesterdays bottoming formation we can make a few calculations – “Measured Moves.” This is where a pattern is formed and if it is broken through then the subsequent move is likely to move equal distance.

Consequently, if the SPX busts above the 1,007 neckline it will be 159 point move from the closing horizontal support of 848. Simple math dictates 1,166 could be the next measured move once 1,007 is broken. Interesting enough this equates to the converging resistance just mentioned.

With that being said, there are a lot of politics, economics and fundamentals controlling the daily action of the equity markets and as you have seen throughout this fourth quarter – “Anything can happen!” So by no means does this imply you should go and blindly buy. To paraphrase our friend and fellow Minyanville writer, Jeff Macke, on last night’s CNBC’s Fast Money … “This is a market of stocks, not just a stock market and this rally should be used as a trade, not a long-term investment.”

Just to give you a glimpse of the increase in risk/volatility since the last recession and market downturn (2000-2003) take a look at the next chart. This is the SPX from the March 12th 2003 low of 800 to the January 26th 2004 high of 1,150. This depicts a 40%+ move off the lows and took 10 months and 14 days to accomplish.

With the volatility we are experiencing of late, a move of this magnitude has the potential to do it in a 5th of the time. Nevertheless, this does NOT mean all good news. With the volatility this high and the global political, economic and fundamental uncertainty investors should expect continued whipsaws and intimidating times ahead. The two levels to be concerned about, for all Four Sisters, are listed in the “Eye on the Ball” above and represent the most recent support and resistance points.

We hope this finds you well and have a wonderful weekend.

Stay tuned & good luck!

Until next time…

Tuttle Asset Mangement Team