BEAR STEARNS BAILOUT SINKS MARKET AND DOLLAR AS TREASURIES AND GOLD JUMP -- S&P 500 THREATENS JANUARY LOW -- JAPANESE HITS THIRTEEN YEAR HIGH

YEN HITS THIRTEEN YEAR HIGH ... Last week I showed the Japanese Yen testing major chart resistance its 2000/2004 peaks. Today's 2% gain against the dollar put the yen over 100 for the first time in thirteen years (1995). While that's good for the yen, it's not necessarily good for global stocks which have been falling as the yen has been rising since last summer. Another low-yielding currency had a strong day today. The Swiss Franc gain of 1.5% made it the world's second strongest currency and pushed it to a new record high against the dollar. With the dollar and U.S. rates falling sharply today (along with stocks), gold and bonds had another strong day.

Chart 1

BEAR STEARNS BAILOUT RATTLES MARKET... Just two days after being assured by its CEO that rumors of a liquidity problem at Bear Stearns were untrue, word that the firm was seeking a bailout from the Fed sent the stock plunging 40% today on massive volume. Needless to say, that devastating plunge pushed the AMEX Broker/Dealer Index down 8% to a three-year low (Chart 2). Not surprisingly, that helped make the financials the day's weakest sector once again. Chart 3 shows the Financials Sector SPDR (XLF) falling nearly 3% today on heavy volume. That put the rest of the market under pressure as well.

Chart 2

Chart 3

S&P 500 CLOSES NEAR 2008 LOW... The entire market suffered a bad chart day. Not only were the major market indexes sharply lower, volume picked up and market breadth was decidedly negative. We're showing three different views of the S&P 500 here. The hourly bars in Chart 4 are intended to show where this week's support and resistance levels are located. Chart support is at 1272 which was Monday's low (and just above January's low at 1270). Initial overhead resistance is located 1321 to 1333 which are Thursday's and Wednesday's intra-day high. The daily bars in Chart 5 put those numbers in better perspective. The S&P fell more than 2% on the day to close at 1288. That puts it dangererously close to its January low at 1270. The point & figure boxes in Chart 6 may offer the best perspective of all. The 1% boxes show that the January sell signal at 1430 is still intact. A second sell signal was given this month at 1307. A close at 1334 would negate the later signal. It would take, however, a close at 1402 or higher to reverse the January signal.

Chart 4

Chart 5

Chart 6