This “Jo” was intended for a mid-day release yesterday, but as the excruciating technical breach of 1,150 occurred on the S&P 500, we stopped the presses in anticipation of what the end of day (close) may bring. Enough said…. here’s the story – a day late but definitely not a dollar short. (pun intended)

After Wednesday’s banter I’ll attempt to stick to the charts and try to keep the sarcasm at a minimum. We’ve been wavering on whether or not to even pen a technical piece; given the fact that it will most likely be outdated 15 minutes from when it’s posted. In spite of that, 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. (With any luck, by the time this gets published it will still be holding.)

To explain further we first ought to re-examine a past ‘Jo’ penned precisely one year ago titled “What if…?” This article defined the 10 recessionary periods within the U.S. economy since the late 1940’s; which outlined data from the U.S. Census Bureau. We then compared the timeframes to past bear trends in the equity market and the results were undoubtedly astonishing, considering our current location.

The title “What if…?” came about from our attempt to technically ascertain – if the economy was to go into a downturn – where the market may go and the timeframe in which it will get there. Not to rehash the entire piece, we selected a few facts presented…

Of the last 10 recessions…

· The average downturn in the market was 26%

· The average timeframe in which this occurred was 11-months

From there we concluded that if the July 2007 top of 1,555 was the peak, it would drop the market to 1,150 by June of 2008. Well, as you all know, that didn’t happen. I guess the crystal was cracked. Then again, on October 11th 2007 the S&P 500 retested the peak of 1,555 and surpassed it intraday by a measly 21 points (1,576). Consequently it marked the top by closing the day out at 1,547 in a Bearish Engulfing Key Reversal Day on high volume. For all intents and purposes (1,550); close enough for government work. Oh I forgot; no sarcasm.

Anyhow, by extrapolating the same numbers from the original “Recession” theory, we added 11-months to the peak of October 11th and dropped the market 26% from 1,550. This puts the S&P 500 at 1,147 by September, 11th 2008 (Missed it by ONE week!)

“To miss or not to miss,” our technical scrutiny doesn’t stop there. Our real conviction about the infamous 1,150 number stems from 10-years of data seen in the chart below. Most of our faithful readers have seen this chart many times, as we precluded what may happen if the 4-year cyclical bull trend ended. The chart represents a LT (long-term – 10 years) Floors & Ceilings support that has been supported 7 times prior. To us, this represents the next logical support for the markets; that?s why the prior comment – she’s gotta hold here!!!!

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. That being said, 1,150 should more than likely be retested over the next few weeks – or days, considering the current volatility. As for now we at Tuttle Asset Management & Church Street Capital Advisors believe the technical tourniquet has been clamped on – for now.

For full disclosure purposes, the last time we penned a piece we stated our management companies were positioned with the Proshares Ultra Short S&P 500 (SDS: AMEX). Since mid-day yesterday we have accordingly removed those short positions and positioned our portfolio’s with Proshares Ultra Long S&P 500 (SSO: AMEX) – thus the pun, “not a dollar short.”

As always… Stay tuned & good luck!

Until next time…

Tuttle Asset Mangement Team

To download the PDF version, please click here.