LET’S LOOK AT THE S&P 500 MONTHLY CHART

You can see how the top of the 2007 high didn’t come in until it broke above the 2000 bull market high and now price just broke the 2002 bear market low.  This trend down has broken through 50% of the high price and the only time that has occurred was 1929.  The arrows are basically at the same price and in 2001 and 2002 the index took 14 months to reach the low and this trend has taken 3 months to reach the same level and loose the same number of points.  This is a once in a generation decline and there is no precedent.

LET’S LOOK AT A WEEKLY CHART

There are three descending trendlines on the weekly chart indicating a capitulation phase of the trend.  We have discussed that circumstance many times on this show.  This means the index will need to exhaust into the low.  I expected a 60 calendar day counter trend from the October exhaustion low but it was only 25 calendar days.  A week ago Wednesday on CNBC I indicated that was wrong.  Keep in mind the weaker the counter trend the stronger the trend and a rally that lasted only 25 days keeps the fast leg down intact.  In fact this rally on the weekly chart shows only one week. 

So where can it go and how will we know the downtrend is complete?  In this style of decline we would expect a big gap down on the low day to indicate an exhaustion or a huge decline that closes on the low for the day.  On that basis even yesterday could be an exhasution.  The prices of 710 to 720 and 650 to 660 are both very strong support.  Since this is an exhaustion move down it could end any day with the large gap to exhaust but should be over by the first of December at the very latest but is more likley a matter of days.  Considering the need for an exhaustion day the 660 zone is not out of the question and could occur at anytime.  If it does run out to the first of December the price would be much lower.  A rally than can exceed 4 trading days will indicate the trend is complete.

This is deflation as I predicted.  The auto industry is bankrupt, banks are insolvent and treasuries are at record low yields because defaults on corporate debt are being anticipated as would occur in a deflation.  Unemployment will rise for the next 9 months and consumer debt as credit cards will see record defaults as retail sales fall like a rock.  This is what is being currently discounted by the markets and will end very soon possibly in days maybe the 25^th.