And The Hammer Falls: S&P 500 breaks below Head and Shoulders Neckline

As I write this, the S&P 500 (SPX) has broken the Head and Shoulders neckline at 1040. It's currently at 1038, which suggests that we're on the way to 900.

Christian at Perfectstockalerts sums it up rather nicely, and has been extremely accurate in his Technical Analysis.

If You're An Idiot, Buy Stocks

To remind you, PSA is predicting a 2100 point loss in the DOW industrials that takes us back to 8000 or so.

PSA predicts 2100 decline in Dow 30

I've tried to warn those friends of mine who are still in the market that this was likely to happen. I'm sad for those who didn't follow the signs.

Now.. to remind all of you, THIS H&S formation currently represents a H&S within a H&S. The major H&S covers a 12 year period originating from the Internet Bubble, to the Real Estate Bubble all time high in 2007, and now the Sovereign Debt Bubble.

Mother Of All Head And Shoulders, Revisited

Now.. it's POSSIBLE that we might see a rally back up to 1060 on the SPX, but the cake has been baked. If we get that rally, you're well advised to sell into it and go to bonds, cash, or for the more daring, go short through the wide variety of Ultra-Short ETFs such as BGZ, TZA, DRV, FAZ.. etc:

Bearish ETF list

But I advise you to wait for a strong rally before indulging in the Ultra-Short sector. These things are notoriously volatile and you'll find you're underwater at times before they gain strength as the market declines continue.

China: The Canary In The Coal Mine

China revisted

China's Leading Economic Indicators were revised downward today and that led to a 4% decline in the Shanghai market. Why this is considered important is that since so many goods come from China to be sold in the US and Europe, if they are producing less, then we're ordering less. Therefore, it provides an interesting signal that analysts watch for signs of future US economic health.

Of course, many also would assert that you can't really believe China's economic data due to governmental controls.

So will this market muster a rally tomorrow? Depends upon the jobs data that will come out tomorrow (from ADP) and on Thursday official Jobless claims. Both of these will come out pre-market, so they could create some additional shocks to the market.

Bloomberg Economic Calendar

Bear in mind that we're seeing a lot of pressure on local and state governments to cull their excess workforce and balance their bloated budgets.

Good luck out there. And remember that RETURN OF CAPITAL IS MORE IMPORTANT THAN RETURN ON CAPITAL.

Scrutinizer