So with the unknowns highlighted above, what hints can we look for in the current market that relate to previous markets and their outcomes? Instead of talking about what we think the current dynamics mean to the market as above, let’s focus on how the current market is behaving. Below are the charts of two significant domestic indices, the predominantly large cap S&P 500 and the smaller cap oriented Russell 2000. Both indices experienced a correction in the spring of this year that took them below their 50 day moving average, but not their 200 day MA. These MA indicators are what many market watchers consider support and resistance zones. As you can see the correction the past few weeks has been more severe, especially for the Russell almost 13% compared to an 8¼% decline for the S&P 500 . The 200 day MA for the S&P 500 has mostly held and if the 1425 level, just below last weeks lows, can hold I would consider the Bulls to still be in control. If that level fails look for the Bears to be smiling.

Final Thought

“My doctor gave me six months to live, but when I couldn’t pay the bill he gave me six months more” – Walter Matthau

Standard and Poor’s, a division of the McGraw-Hill Companies (NYSE:MHP), provides independent financial information, analytical services, and credit ratings to the world’s financial markets. It is a US-based company which provides independent insight, analysis and information to the financial community to help determine value in the marketplace. Standard and Poor’s is a much better indicator as it represents a bigger pool of companies.

An essential part of the world’s financial infrastructure, Standard & Poor’s has played a leading role for more than 140 years in providing investors with the independent benchmarks needed to feel more confident about their financial and investment decisions. Ratings information is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system. Standard & Poor’s has a long history of creating standards for the financial industry. It has the world’s largest network of credit ratings analysts with more than 1,250 across the globe. Standard and Poor’s is the world’s leading provider of mutual fund information and analysis, covering over 51,000 funds in 52 countries.

Standard and Poor’s is known to prefer stable firms for its indices, so inclusion of a firm in the S&P 500 may be perceived as a reduction in the risk of its securities. If you invest in all 500 of these stocks you own a small piece of what makes America tick financially. Investment professionals use the S&P 500 more than any other index in the world. In other words, if you trade the S&P 500 you are certainly starting at the right place.

Chart Spotlight

Another precipice? Stocks have had some shaky moments the last few years. Without fail they have been able to pick themselves up, shake it off and move higher. We believe we are now at another precipice and wondering if this time is different. Below are charts of four major indices. So far the pull back looks similar to the spring correction with the Russell 2000 Small Cap Index the only one to violate the March lows. The further we move along the closer we come to the first 10% correction for the S&P 500 since 2003, just 33 points to 1400. As you can see the damage was quickly contained in the spring, we believe we are going to have to get help from the Fed in the way of lowering interest rates and a flood of liquidity to stop this drop. The only problem is… that is what got us into this credit issue in the first place?

Did You Know…

AWFUL AUGUST – Since 1990, the month of August has produced the worst average total return of any of the 12 months for the S&P 500 stock index. The average August has resulted in a loss of 1.0%. Ten of the 12 months have been up on average and only August and September have suffered a negative average monthly total return in the last 17 years. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).

Final Thought

“Bills travel through the mail at twice the speed of checks” – Stephen Wright