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Our commentaries are provided as general information and not investment recommendations.  You are responsible for your own investment decisions.  Our opinions are based on historical research and data believed to be reliable.  There is no guarantee that results will be profitable.  We are not responsible for errors or omissions.  We may hold positions in vehicles that are mentioned.

The popular averages continued to the downside on Tuesday. Again it was the financial sector that led the way. The housing bust, which I had a hard time convincing folks was coming, is ripping its way through the financial industry which is pulling down the rest of the economy and the stock market. No one who comes here regularly should be surprised by any of this.

Above is the one-year chart for the S&P 500 exchange traded fund (SPY). Back in October I warned you of a topping formation, and the price promptly descended in a five-wave Elliott pattern typical of bear markets. After a normal 50% retracement, the second leg of the bear market began three months ago. It eventually brought the price under the levels of the January and March lows. Now the confluence of the 50-day moving average with the year’s earlier lows has defined an equilibrium point around which the price has been waffling. This level looks more like one of severe resistance that will eventually send the price to new lows for this bear market.

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