For Sunday, October 12, 2008                                          Go to Website
	Current Strategy Positions FibTimer currently has 11 successful timing strategies   Aggressive S&P Position -          BEARISH   Aggressive Nasdaq Position -   BEARISH   Aggressive GOLD Position -      BEARISH   Aggress. SMALLCAP Position - BEARISH   U.S. Dollar Timer Position -        BULLISH   Aggressive BOND Position -      BULLISH These positions were started over previous weeks. You need a paid subscription for real time signals. Sector Funds, ETF and Stock positions are not included above.

Last week we wrote:

"...The stock market got what it wanted [last] week; a $700 billion dollar bailout bill that just a rumor of resulted in a huge two-day rally three weeks ago. But something changed between rumor and actual bailout bill, and instead of a rally, [last] week the market plunged. The S&P 500 Index - SPX lost 9.4% for the week and is now off 25.1% for the year."

This week:

Last week the S&P 500 Index - SPX lost 9.4%. This week the SPX lost an additional 18.2%.

There is little we can add to such numbers. Though this decline has not, to date, had the typical earmarks of a crash, we have without doubt had a market crash. In 1987 the stock market had a one day decline of 22%. This is what people expect of a crash but a two week loss of almost 27% is a crash.

The question now is, are we at or very near a bottom, or is there still a one day "crash" ahead that will mark a bottom? Typically market bottoms are marked by a one day extreme low that reverses and closes with a solid gain, on high volume. We had something like that Friday, but the close was clouded by selling and the day ended with another loss.

For those aggressive timers who are anxiously awaiting a buy signal, be advised that we are NOT trying catch an exact bottom. If we were reversal traders, we would have exited a week ago when it looked like a bottom to us, and that would have been a mistake.

Instead we are trend traders and when we have confirmation that a new bullish trend is in place, we will reverse to a bullish position.

This week there are both daily and weekly charts for the SPX and NDX below, as well as a weekly chart of the VIX. There is no way to show this decline clearly with only a daily chart. It is just too steep.

Short selling returned this week and it is hard to say if it made a difference. There was extreme selling every day.

Every major support has now been broken, with the exception of the 2002 bear market lows at SPX 769.98. Can we reach those lows? There is no way to tell, but why not? Typically when supports are broken we reach the next one. In this case, the next one is at those 2002 lows.

At the same time, this is not a typical bear market. We have weekly losses that are astounding in their size. We could continue down to lower lows, have a huge "crash," or reverse at any time

We will follow wherever the stock market takes us.

There are short term resistance levels far above at SPX 1073 and then SPX 1130. The numbers are far above because the declines are so large and occurred so quickly.

The SPX remains far below both its 50-day moving average and 200-day moving average. Both averages are in steep downtrends. They will not be reached anytime soon.

Over the years we have been avid fans of the CBOE Volatility Index - VIX. It has reliably signaled turning points in the market when it rose above 30 and especially when it touched the 40 level. During the 2000-2002 bear market it reached into the fifties a couple of times, accurately signalling bottoms.

You can see the July 2007, January and March 2008 spikes in the VIX (see below chart). Each of these marked correction lows that resulted in a substantial rally.

But now VIX has reached almost 80 intra-week, higher than ever before in our data, and closed at 69.95. The VIX chart is telling us fear is at historic highs and a market bottom is close. But does that mean Monday? Or does it mean a week from now at much lower lows?

Last week we wrote: "There appears to be a different pattern in VIX this time around. It is climbing higher and each spike is followed by an ever higher one. It looks like VIX is climbing a wall, instead of making a fast one-week spike as occurred before. VIX is a good predictor of market rallies, but only "after" it reverses to the downside. We could be at a top in VIX, or there may still be a blow off to higher highs. During the last bear market the VIX reached to over 55, twice."

VIX is still a great tool, but obviously in this decline VIX is just an interesting chart, not one that can be counted on to tell us the exact day a bottom occurs. Certainly it will decline quickly when we do reverse and that is something we are watching for.

What is our conclusion?

The stock market is likely near a bottom. It could have been this last Friday, it could be this coming Monday, or it could be several weeks away. We will be in bear funds or cash, according to whether you are an active or aggressive timer, when that bottom occurs. Then we will be watching for the all clear, and a bullish signal, to start the long and doubtless volatile ride higher.

The strategy remains positioned for continued declines.

For subscribers who overly worry about short term swings in the financial markets, remember that you do not have to be an aggressive timer to be a profitable timer. This strategy can and does incur small losses on occasion. Money is made in both aggressive and conservative style trading. Our Conservative S&P Timer strategy trades only the long term trends but that means it profits without the numerous buy and sell signals that active and aggressive traders take. The Conservative S&P Timer has been in cash since January 7th.

The SPX portion of this strategy is in a BEARISH position. Subscribers following this strategy should be in a CASH (money market funds) position in both the Bull Only (active) and Bull & Bear (aggressive) strategies

S&P 500 Index (SPX) Daily Chart

S&P 500 Index (SPX), Weekly Chart

CBOE Volatility Index (VIX), Weekly Chart

Nasdaq 100 Index (NDX) Chart Analysis

"... The chart of the Nasdaq 100 Index - NDX looks like it fell off a cliff. Two weeks of severe declines now have this index, of the largest tech companies in the world, off 29.5% for the year. The approval of a bailout plan did nothing for the Nasdaq and considering that bank and insurance companies are not part of this index, it makes sense. There is nothing in the plan for them, though of course an easing of the credit crunch is needed for all companies."

This week:

The Nasdaq 100 Index - NDX held up well on Friday, losing only a fraction with a 0.42% decline. But for the year it is off about 39.2%, a huge loss.

For the week, the NDX lost 13.7%. Better than the SPX, but the chart is actually, in several ways, more negative than the chart of the SPX.

In the below daily chart you can see what happened when the NDX broke below the 2006 correction lows at 1451. A gap down followed by escalating declines. This is what we would expect when a major support level is broken.

In the weekly chart you can see that this week we broke below the 2004 correction lows at SPX 1302. This new close below major support forecasts a decline to the next support level at NDX 1106. That is 13% below current levels, not a good sign.

Again, as we wrote in the SPX analysis, these are not normal times. We could reach that 1106 level, or stop declining right here. There is no way to know ahead of time. We will just follow the market and let it tell us what to do.

One bearish chart indicator is the Elliott Wave count. It shows the NDX in a declining Wave 3. Wave 3 is the largest wave and so far this is what we have seen. Typically it is followed by a Wave 4 to the upside and then a declining Wave 5 to a lower low, and the bottom of the bear market.

Sound ominous? It is. We have this same wave count for the SPX which looks like it is near the bottom of a completed Wave 3 pattern. Again, this is not a normal bear market. The speed and depth is more like a crash, but spread over a couple of weeks. We are likely to see very different chart patterns develop.

So, just as we await a bottom in the SPX, we await a bottom in the NDX. Once we have a confirmed uptrend we will reverse to a bullish position. A Wave 4 advance may trigger a bullish signal if it is strong enough. Of course a Wave 4 advance would not last very long.

Last week we wrote: "A sustained advance cannot yet be forecasted, but it will begin. When things are darkest, a rally is closest. It has been this way since the beginning of free markets."

We thought things were dark then. Yet here we are 13.7% lower in the NDX and 18.2% lower in the SPX, and only a single week has passed. These are historic times and as such, the markets are quite likely to follow different paths than what we expect.

So expect the unexpected. We will stay with the trend.

The NDX portion of this strategy is BEARISH. Active traders should be in CASH (money market funds). Aggressive traders should be in the Rydex Inverse NDX 100 Fund (RYAIX) or other bearish NDX 100 index fund.

Nasdaq 100 Index (NDX), Weekly Chart