Dow Breaks Nov '08 Lows, S&P Testing Lows, Market at 1997 Levels. Need Positive Catalyst Immediately.

Today the S&P tested the November lows closing at 743. The S&P hit 741 in November, 2008. The Dow already broke the lows a few days ago and it's been in a pattern recently that the S&P follows the Dow (link). I'm not saying it will happen this time.... Still we're trading at levels not seen since 1997 which has been a disaster for the long term index fund investor. These are major levels if breached here. What's interesting though is the $VIX (Volatility Index) isn't even close to the highs we saw in November so does that mean we're in for a slow death or a base around these levels? Things are definitely bad right now w/ nationalization fears, poor earnings and economic data but back in November when Lehman went bankrupt the financial system almost broke down, LIBOR spiked and the TED Spread (difference between what banks and the Treasury pay to borrow for 3 months) widened.

Now we're dealing with the same problems. GE Capital was valued at 0 today, AIG needs more capital to stay alive, the Gov could own 40% of Citi's common stock and JPM just cut their dividend by 87%. Also Obama could tax some market participants on Thursday (video and quote below) so be on the lookout for the market reaction. Here are the charts. Some of the shorts could get knocked out here but we really need a positive catalyst. Plus I'm also watching the U.S Dollar. With the monetary base spiking and the US Dollar Index catching a bid it doesn't reflect well on the strength of other countries or the reflation attempt. So what will the positive catalyst be, nationalizing the banking sector??? (Roubini says a takeover and resale is the market-friendly solution (WSJ.)

S&P 6 Month Chart


Dow 6 Month Chart


Dow At 1997 Levels (Source: Barchart.com)


S&P At 1997 Levels (Source: Barchart.com)

VIX (Volatility) Index (Source: Stockcharts.com)


TED-Spread (Bloomberg)

"Some of the president's proposed budget-balancing measures raise eyebrows, however. For example, Obama plans to collect more tax revenue by raising the rate of taxation on hedge fund managers, who now enjoy a 15 percent tax rate.

They run private investment pools for the wealthy and are compensated on a percentage of their capital gains, or investment earnings. Obama wants to tax hedge fund managers at the corporate tax rate, but these funds are dropping like flies in today's twin banking and credit crises, and it's not clear how many will be around to tax when the crisis eases." Kansas City Star