ANOTHER BAD MARKET DAY AS MAJOR INDEXES THREATEN AUGUST LOW -- THE ONLY WINNERS WERE BEAR AND BOND FUNDS -- A BREAK OF THE AUGUST LOW WOULD CONFIRM NEW BEAR TREND

MORE OF THE SAME... With each passing day, the economic news keeps getting worse. Today it was terrible fourth quarter earnings by Citigroup and very weak retail spending. As a result, financial and consumer discretionary stocks were the day's biggest losers as they've been doing for some time. What was different today was that every group fell -- including energy, which had one of the day's biggest losses. Foreign markets also fell hard. From a technical standpoint, there isn't much new today. As I've been reporting for the last few weeks, monthly indicators are on the first sell signal since the bull market started in 2003. That's keeping the market under pressure and preventing any short-term bounces from getting very far. From a pricing standpoint, the major stock indexes have now reached a moment of truth. That's because they're threatening to break their August intra-day lows. The Dow actually did that by a small margin today (Chart 1). The S&P 500 and Nasdaq Composite appear on the verge of doing the same. A decisive close by those three market indexes below their August lows would leave little doubt (if any remains) that the market has entered into a new bear phase. I recently suggested that a loss of at least 20% from the recent highs is likely. I sse no reason to change that negative view.

Chart 1

Chart 2

Chart 3

BEAR FUNDS CONTINUE TO RALLY ... The only funds making any money today were bear funds. That's the best place to be in a falling market. Chart 4 shows the Short S&P 500 ProShares moving up close to a new 52-week high. Virtually all of the bear funds rose today -- including those in foreign markets. [Please see my earlier Message on why the rising Japanese yen threatens the global bull market in stocks]. As has been the case recently, bond funds had a strong day as well. Chart 5 shows the 7-10 Year Treasury Bond Fund hitting a new 52-week high today as bond yields fell. Bonds normally benefit from falling stocks and a weakening economy. Unfortunately, things will probably continue to get worse before they can start getting any better.

Chart 4

Chart 5