3 Lost Years

People buying the S&P 500 have now officially lost just under 3 years of gains. The last time we were at 1170 was the lows of October 2005. If this level breaks, the next support is April 2005 at 1140. If that breaks October 2004 comes into play at 1100 or so.

As you can see, October is not a very good month. Nor is September historically. As we said with S&P 1215 yesterday we should see a "bounce" off the 1170 level at least on the first try as this is historical support. What the market does after the reflective bounce is of more importance.

We won’t be catching the bottom since we are not buying anything, but we want to see a full fledged panic much like we saw yesterday with stock after stock dropping 10-15%. And very high volume. This can create an "exhaustion" type of bottom. It will be interesting to see if there is any "solution" to AIG (AIG) which could also turn this market, at least for a short time. But unfortunately the financial issues are simply un"fixable" by conventional means – aside from time, time, and more time – and more capital (which no one has) – there is no easy solution for their problems. This was true 1 month ago, 3 months ago, 6 months ago but sometimes the market lives in denial. Now it has moved from "hope" to fear.

Again in the end (the ultimate solultion) I expect the federal government to ‘create’ capital out of thin air (printing press) as things degrade. That is terrible for the dollar but the dollar bulls have not figured it out yet. They have already begun buying mortgage securities outright, something unthinkable (except for a few bloggers who said this would be the end game) a year ago.