Market Update Email 3-1-09

All, no charts tonight, but nothing has really changed. We are heading down and continue to head down hard. The bounces have been very weak and my embedded scenario is playing out (mentioned in last week's letter). The big double bottom bounce was very weak, if not nonexistent, and makes me think the bounce I am waiting for (which corresponds with the 4th wave bounce of the final 5 down) has still not happened yet. This is how I am playing it, anyways. The fact we just blew by the 2002 and November 2008 lows without a whimper is scary, frankly. There should have been some conviction of buyers there, but wasn't.

The Volatility index (VIX), put call ratios, and volume all say this decline is far from over. In fact, on the committment of traders chart, which is a chart that tracks the small speculators, large speculators, and large institutions actions, the only group of people who are net long are the small speculators. This group is always wrong about the market as a whole! This group represents the general investing public. This is also the first time since the March 2008 bounce that the only bulls have been the small speculators. This is scary, too. The VIX also has barely moved since the early January top, even though we have fallen over 20% since then! Complacency is way too high. Too many people think the bear is just about done. This is also supported by the amount of call buying versus put buying which continues to be a great indicator.

Bottomline is the wave 1 I have labeled on the Feb 20 chart last week is still applicable for all intents and purposes. We just haven't gotten that double bottom bounce with the suckers rally to the red zone. The red zone is fully below $800 now, by the way. Once that bounce occurs there will be one more ample opportunity to get short before the final sell off at least into the $600s, and most likely low $600s (at least that's how it looks today).

Tomorrow looks like it could be a bloody day.
Good Luck. Chad