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Wednesday, January 9, 2008

DOW at 12589.07 and the S&P at 1390.19

Phew. What a day. The DOW punched into the support zone, and then a little bit beyond it yesterday, to close at 12589.07. The S&P remains at 1390.19. Today should be interesting.

Whether or not this is our bear market confirmation, I still have to wait to see. However, I will say that if we stay below this level for the next 5 trading days - yeah - we're in a new bear market. We'll have to remain below the support zone for that eventuality to come to pass before I firmly believe that. But here we are. At 12589.07 The downward slides are lasting longer than the brief rallies. In addition, we're making lower lows now, but have not attained Higher Highs.

So what does it mean if we are entering a bear market? A bear market can last upwards of a year, and can shave off 30 to 40% from the market. From the outlook of a long term investor (10 year plus) this means that you must look at your long term portfolio account, and emotionally be prepared to withstand those sorts of losses. It also gives you an opportunity to save up some cash.

If you are trading the short side, then it means that you must watch the 'waves'. Those who are experienced with Gann material will understand what I mean by that statement. Gann wrote that the market tends to move in five waves. When looking at any possible bear market from that route, I would say that if you are trading the short side in the small term, just be careful of the small, very explosive bear market rallies that occur. When they do, they are usually very sharp. So beware of getting 'whipsawed' out of any short positions.

It should prove to be a very interesting five days.

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