Our trend indicators have turned negative for all the major indexes except the DJI.

Last week we noted that the NASDAQ Composite had completed a head and shoulders top and that the target cover price, based on the distance between the neckline and the head, was around 2310*. In fact, the low this week was set on Tuesday at 2332, quite close to the predicted target. Whether or not this week's low represents a bottom is very much open to question.

While the markets almost certainly over-reacted to the global downturn, rumors of European bank insolvency and US debt downgrade, the prospects for the US and global economies in the short to medium term are weak. Barry Ritholz poses the question  "Are we already in recession" and answers it by saying "Given yesterday’s data showing both imports and exports falling, we may have an implied Q2 GDP revised lower by 0.8% to 0.5% annualized growth - putting Q2 into the negative category." If so, then this week's bounce may prove to be of the dead cat variety and we may in fact be already in a bear market.


* In fact we said 2100 when we meant 2310. This was corrected in the online version of the newsletter.

 No new features this week.

The volatility present in the market this week creates opportunities for very short term traders, but is a challenge for most of us as the indexes can move by hundreds of points in a few minutes. Only computers can compete in this trading environment. In fact, as this Bloomberg article shows, trading volumes tripled due to computer driven high frequency trading. I think it is better to stay on the sidelines until volatility returns to more normal levels.