The S&P 500 index closed on Friday October 3, 2008 at $1099.23. The S&P 500 is arguably the most widely accepted gauge of the market in the US. It includes 500 ‘blue chip’, large cap stocks, which together represent about 75% of the total U.S. equities market. Companies eligible for addition to the S&P 500 have a market capitalization in excess of US$5 billion. Refer to (www.standardandpoors.com) for a more detailed description.

The high for the S&P index over the last year was $1576.09 on October 11, 2007 and the low was $1098 reached on October 3, 2008. From the peak (high) to the trough (low) that represents a drop of –29.3% for the S&P 500 index vs. the TSX, which was down at –24.1% over that same time frame. Year-to-date the S&P 500 is down over 25% if you measure from December 31, 2007 close to Oct 3, 2008. The TSX is also down about -22% over the same period.

The chart is telling us that investors are bearish toward the S&P 500. Over the last year there were some short-term rallies, however, the longer-term pattern has been a downward channel for a year now. Recently another technical indicator has raised it’s head. The CBOE VIX (volatility indicator) has risen to over 50. To put this in perspective, in August 1998, the VIX spiked to 45, in September of 2001, it spiked to 43 and in October 2002, it spiked to 43 again. The higher it is, the more fear. This could signify the bottom is near.

Technical analyst John Murphy put out an article on why historically October is typically a bad month to sell. According to Stock Traders Almanac (which is the authority on seasonal trends), October crashes took place during 1929 and 1987. October is known as a “bear killer”. Bear markets ended during October in 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001 and 2002.

So why isn’t the bailout plan passed by Congress working yet? Investors are now looking at the recession in the U.S. and the frozen credit markets worldwide. Read John Mauldin’s article “The Curve in the Road” (www.frontlinethoughts.com) for some perspective on why we will likely see Governments drop rates.

Although technical and fundamental indicators are bearish, I hope you built up cash a few months ago and have it ready for action when things turn. As Warren Buffet says, “Buy on fear and sell on greed”.