BREAK OF AUGUST LOW CONFIRMS BEAR TREND -- BOLLINGER BANDS CALL FOR DOWNSIDE LOSS OF AT LEAST 20% WHICH WOULD BE OFFICIAL BEAR MARKET

AUGUST LOWS ARE BROKEN ... On Tuesday, I wrote that a break of the August lows by the Dow, the S&P 500, and the Nasdaq Composite would confirm that the stock market has entered into a new bear trend. The reasoning comes down to a simple definition of a trend. An uptrend is defined as a pattern of successive higher highs and higher lows. After a market hits a new high, the previous low becomes a critical support point. At no point in the last five years (until now) had the market broken a previous reaction low after hitting a new high. The October high made the August low a crucial support point, which has now been broken. That has turned the major trend from up to down. It's as simple as that.

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MONTHLY BOLLINGER BANDS SHOWS 20% BEAR TARGET... One of our readers asked for some downside targets. Actually, I already gave them in a January 4 Market Message which called for a minimum decline in the S&P 500 of 20%. That's also the minimum requirement for a bear market. I arrived at that downside target in a number of ways. One was the use of monthly Bollinger Bands. In that earlier piece, I showed that a break of the 20-month moving average (which has since happened) would most likely lead to a drop to the lower monthly Bollinger band which currently sits near 1260. Measured from the October peak at 1576, that would be a total drop of -20%. It may drop further, but that's my next downside target. [I also showed on January 4 that a drop of 20% would retrace three-eighths of the entire bull market from 2003]. Chart 5 shows a downside Dow target near 11000 for a loss of -22%. The downside Nasdaq target is near 2100 which is a drop of -26%. I also gave those downside targets on January 4. All three lower bands are in bear market territory, and I continue to believe that's where we're heading. [Please see my earlier Message on why commodities may start to drop as well, particularly copper and oil. Gold and grains should hold up better].

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