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We're not there yet as we've just barely broke some major support in Tuesday's session. I'm still looking for a test of a much longer term and more important area - the 1375, 80 wk moving average for the S&P 500 which had previously held over the duration of the bull. While I am no longer convinced it will hold, and we're likely in for an average bear (meaning down about 25% from the highs) to set in during the months ahead, I'm not willing to declare the bull dead until that ultimate area of support in the 4-year bull market cycle is broken.

But things sure don't look good, and ultimately these so-called support levels will not be a magic brick wall to stop selling, though everyone and their uncle uses these support areas, and the charts are uncanny for illustrating where the market has taken breathers on the way up, and now down. At the very least this week, it looks as if 13k on the Dow will be taken out (right, it's just a number, and no harm done in taking out 2 millennial marks in the space of a couple of months, right?).

In my CNBC options report, I noted the heavy put buying again in the financials: Options Report: Financials May Face Another Big Selloff. Countrywide (CFC), in particular, is looking like a real time bomb. And Paul Foster at theflyonthewall.com makes the excellent point that we will be waiting until late September, and earnings in early October to learn more of the damage that's happening now to the financials.

Speaking further of options, this is an expiration week and open interest on various puts remains biased to the put side, but it's still an early call on whether strong sell programs are triggered on Friday because traders could exercise or roll those puts.

Don't let anyone fool you. The use of leveraged financing to purchase risky assets is not going to be unwound in a couple of weeks. OTC derivatives tied to risky assets, also purchased with leverage will not be quickly rewound either, if ever. There are some bloggers who brag about being nearly 100% long in this environment - they're worth reading for entertainment purposes, and if you like to watch a slow-motion train wreck, and someone learn the hard way. Yikes, is all I can say. Same goes for the 'bullish' TV talking heads who keep chiming in about how this is a "buying opportunity." That's even scarier since unlike us bloggers, there's a real audience for the boobs on the boob tube.

The stock market is a discounting mechanism that looks out several months. I would imagine that these sagging market levels have a great deal to do with credit market consternation, but also a realization that the economy is at risk for at least a mild recession early next year. 15x S&P 500 p/e is fine in continued strong times, but what if Fed Funds futures are correct and the Fed has to scramble at the end of the year to lower rates to avert recession? I'd be careful of putting any weight into the theory that the stock market is a "victim" and that it's being mis-priced. It's going to take a quarter or two to know the answer.

Warren Buffet did some stock buying in the spring with Dow Jones (DJ), and Bank of America (BAC) getting the attention late Tuesday. But that's the problem, spring is in the past, and I'd like to see what he's buying these days.

For the time being, any negative headline out of hedge funds, commercial paper and even about personal consumption will get the market into a tizzy. Be careful out there. I'm sorry to say we're not going to be waking up anytime soon to a 'new day' when all of these problems will simply be gone - not when they're measured in the multi-trillion dollar range and on a global basis. In fact, at the risk of sounding very bearish, there's a great risk we wake up one morning to a real day of reckoning. But maybe that's my high insulin intake making me grumpy tonight - let's hope so.

Oh, and it's nice to see that this bum got his money out in the nick of time, Insider Trading at American Home?

Source: Is the Bull Market Dead, Yet?