DOW AND S&P 500 CLOSE BELOW 2002 BOTTOM -- TREASURY BONDS BOUNCE ALONG WITH THE DOLLAR -- GOLD HOLDS FIRM -- A RISING VIX IS ANOTHER WARNING SIGNAL FOR STOCKS

2002 LOWS UNDER PRESSURE ... Price declines in excess of 3% pushed the Dow and S&P 500 to the lowest closing price in twelve years. The monthly bars in Charts 1 and 2 show those two indexes closing under the previous bear market low formed in the fourth quarter of 2002. Several other market indexes (like the NYSE Composite Index and the Wilshire 5000) are close to doing the same. Needless to say, this puts the market in a dangerous chart situation. The S&P 500 has been in a huge "trading range" since 2000. The 2007 S&P peak stopped right at the 2000 peak. In order for that trading range to continue, the S&P needed to say over its 2002 bottom. Unless today's losses are reversed by the end of the week, the chances of a more serious chart breakdown are greatly increased. I'm somewhat reluctant to declare this a major breakdown on the basis of one day's activity. Normally, a major violation of support requires a weekly or monthly close below a previous low. Since this Friday ends the week and the month, where the market closes then will carry much more significance.

Chart 1

Chart 2

TREASURY BOND AND THE DOLLAR BOUNCE ... Treasury Bonds bounced today as stocks fell. Chart 3 shows the 20+ Year Treasury Bond ETF (TLT) bouncing. So did the dollar as Chart 4 shows. Although gold bullion lost $6 today, the GLD closed modestly higher. All three markets have been acting as safe havens against stock market weakness.

Chart 3

Chart 4

Chart 5

VIX TURNS UP ... On January 9, I showed the CBOE Volatility (VIX) Index starting to bounce off chart support near its 200-day average and the high formed last spring near 35. [A previous peak usually becomes new support). I warned that an upturn in the VIX from that level could undermine the stock market rally. Chart 6 shows the VIX climbing 6% today to the highest level in a month. It's also back above its 50-day average. A rising VIX is normally associated with falling stocks.

Chart 6