Okay, Now Back to the Neckline

"The stock market is in a free fall, and making new lows!"  That is the popular opinion.  Congress' approval rating is plunging, along with Obama's ratings, as the debt debate attempts to move forward.  Greece is about to drive Europe off a cliff, the Fed is running out of silver bullets, and many analysts are downgrading the economy, fearful of a double-dip recession.

Yet, the shouting is certainly overshadowing the whispers of more positive questions arising in the background  such as "Why is the price of gold plunging?", "Why did the S&P 500 NOT make a lower low from that August 8th low?", "Why are growth stocks outperforming value stocks?", etc.  And in the midst of last week's decline, these weren't the only "what ifs" that arose.

But now, for the first time, the ticking time bombs that were being totally swept under the rug for 20 years have a deadline of Thanksgiving.  Nobody is giving the Super Committee of highly partisan politicians any hope of finding a solution that either MUST be implemented, or everything gets cut - on both sides of the aisle.  It clears the head, and it sensitizes negotiations.

And now, the stock market is setting the stage, just as it did last summer before the mid-term elections were sneaking up.  We cited a few weeks ago, as the market was rallying, that we thought we would witness a market that resembled that of 2010.  We noted the reverse head-and-shoulders pattern from last year, and as the market has been stronger than the correction pattern of last year, we have not seen a lower "head" on the S&P 500, which you can see in the chart below.  So the thought process is the same, intense weakness and many non-confirmations.

Click on chart to view larger image.

I cannot say that we won't see a lower low, but I would be very surprised if we see higher fear, as we have been mentioning, or more net new lows in the underlying stocks.

Don Hays

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