Death Crosses Flashed; Bear Market Confirmed

The month of September is traditionally the worst month of the year for stocks.
But in just two days, the market fell 3.77%, marking this September as its worst
start since 1974, according to The Wall Street Journal . The recent behavior of
the market is in stark contrast with accepted trading theories that assume that
the market has an upside bias at the end of each month and the beginning of a
new month due to inflows of large deposits from IRA and 401(k) plans. But as Sy
Harding of StreetSmartPost points out, this theory holds water only in bull
markets and is "not reliable in serious corrections and disappears altogether
in bear markets." The recent trigger for the selling, of course, was
Friday's jobs report that showed no jobs created in the month of August, with
June and July reports revised lower. The August unemployment rate was reported
as 9.1%, unchanged from July. The technical position of the market prior to the
jobs report was weak. The neckline break at 1,260 led to a sell-off that dropped
the S&P 500 back to the top of last summer's trading range at 1,100. All of
August was spent in a rebound and consolidation that now appears to be a bear
market flag with its low at 1,100 and high at Thursday's reversal point at
1,230. Flags usually point in the opposite direction of their final break. In
other words, upward pointing flags like this one usually break lower. Initial
support for a lower break would likely result in a fall to last summer's
trading range at 1,040 to 1,100. As we enter September, there have been few
positive changes in the economic and political arenas of Europe and America, and
the same old technical problems seem to haunt the bulls: The market has turned
down from the enormous resistance formed over a seven-month period with a
bearish daily reversal from the Dow Jones Industrial Average, and the S&P 500 is
in the process of forming what appears to be bearish flag. And as previously
noted, the Dow Theory has confirmed a bear market, all major indices have
flashed a death cross.