Market outlook for Jan 23rd and into next week: The first dose of fear

Markets are set to go down today. The Dow is down about 137 and the S&P500 is down 13 at 4:30am PST. It appears to me that we are going to go try another retest of the lows of 7,300 on the Dow and 750 on the S&P500 starting today and going into the coming days next week. The fear level is rising about the economy, the banks and what's happening to constrict the economies in Europe and China. Some are predicting instability in China because of the slowdown in the economy and the possibility of social unrest.

It is too late to venture in and buy the ETF Ultra Shorts SDS and TZA in my opinion because this market can turn the other way on a dime. Volatility has been rising since the beginning of January, as measured by the VIX. It was at 39 and closed yesterday at 47, for a 20% increase and I expect it to go higher.

The Put to Call ratio closed yesterday at 0.88 and I expect it to go lower to 0.80 or lower which would be a signal to sell more. We are now in a cycle, where bad news does drive the market lower. A few weeks ago many had declared that the market was handling bad news very well. That has now changed. Fear is starting to come back again. Gold is rising again. In my view this is not bad as I wrote earlier in the week. We need a little fear right now so President Obama can get his changes approved by Congress. I also wanted to report that my read on the charts for the Dow actually shows a distinct sloping uptrend lines starting with the low in the year 1988 and going to 1995. This line crosses the axis today at 7,300. But if you go back to 1983, which is the year the Dow started to rise after the recession of 1982 and connect that point with the 1988 data point, you get an uptrend line which crosses today at about 5,200. If we break the 7,300 level on the Dow and can't get above it, we will be heading for a Depression, not just a bad recession. Let's all hope this 7,000 level can hold. As we get close to it fear will rise almost to a panic state again. When you watch the financial news on outlets such as CNBC, you will start to hear the fear bounce between hosts and guests. Sorry again for the gloomy outlook but in a way we need this fear to help get the changes implemented. Otherwise it will be business as usual.