Beginning of the Bear: Email Update 1-6-08

This is the email that started it all. I sent this out to friends and family on Jan 6th, 2008 after the markets confirmed a breakdown of the 20 month moving average. The links in the email should still work and will give you an updated chart, but I have attached the original chart as seen by the links in Jan 2008

To: Friends and Family

Subject: Long term S&P500 analysis: 2000 top versus 2007 top

I have attached a chart I built comparing the similarities between the year 2000 and the year 2007 market tops.

It is important to note that Friday's sell off penetrated a very key long term support of the S&P500. The 20 month (400 day) moving average has held as support for the entire bull run since the 2002 bottom (see both charts). That support was breached on Friday and is a sign of trouble. If the market does not rebound quickly (by the end of the month) above it, then we are in official bear market watch mode.

In the 80s and 90s, the 30 and 40 month moving averages were the primary long term supports (see first chart). You should watch them closely because once they break we are technically in an official bear market in stocks just like we were in the beginning of 2001.

What this means: If I were your advisor and by the end of January the S&P was not back above the 20 month moving average (currently at $1426), I would tell you to take ~33% of your long positions and switch them to short, safer (dividend paying), or cash positions until we are back above the 20 month MA.

Other key points to the chart:

-The long term support line (blue uptrend) is currently at the 40 month MA level and quickly approaching current price levels.

-There is negative divergence from an overbought position on the relative strength (RSI) of the move in 2007 just as there was in 1987 and 2000.

-The Long term MACD just had a bearish cross, the first one since the 2000 top.

2000 versus 2007 tops:

http://stockcharts.com/h-sc/ui?s=$SPX&p=M&st=1980-01-01&id=p02288613832&a=127112637

Zoomed in view of 20 month moving avereage penetration:http://stockcharts.com/h-sc/ui?s=$SPX&p=M&yr=10&mn=0&dy=0&id=p53660378548

Let me know if you have any questions.

I followed up the above email one week later with the following email and chart on the 17th of Jan 2008...

Figured we got thru four days of charts, might as well do one final one for the week. This one, I feel is the most important and is support to the one I sent last week (copied below).

All the info you need is on the chart. Remember the one I sent last week had the 20 month support propping up the long term market. Now after a continued selloff the 20 and 30 month have been taken out and the 40 month is only 11 points away. I said if they get taken out it is goodbye market.

The attached chart is a little more short term in nature but ideally supports the long term view. Having the two on the same page gives me more confidence that what I am concluding is correct. Anyways, enjoy and let me know if you have any questions.

Chad

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=10&mn=0&dy=0&id=p45918741424&a=128249813