Markets and politics rule the week. Whipsaw action in both

It has been a while since I have commented about the overall market. This has been because nothing much was different in the trend until now. We are currently at a very interesting point on both the Dow and the S&P 500, as the 2 charts above show. We have broken the uptrend line this past week and reverted back just to the critical 3 year downtrend line. If we go below this downtrend line we are headed dramatically lower and could finally have that major 20% correction. However, if we can stay above that line, we may avoid it, at least for now.

We have gone back to the previous, ever important, resistance level of 1090 on the S&P 500 when markets closed lower on both Thursday and Friday. Back in early December, December 5th to be exact, I had said that I expected the correction to begin the end of January into the first 2 weeks in February and we are just about there now. The next 2 weeks will determine where the market is headed for 2010. If you have been following the markets recently, when good news has been the leading story of the day, like how much GDP gained in the 4th quarter, the market did not stay up. And when the market seems to have some bad news, the market has a big selloff on higher volume. The market is prepared to go lower psychologically right now and it may just play out.

The political arena has also added to the volatility when the seat Ted Kennedy held went to a Republican and shook Democrats to their core. They were in disarray. But then the State of the Union speech given by President Obama had many feeling a sigh of relief that it was a great speech which boosted the Democrats morale. Yesterday, President Obama went into the mouth of the beast, being invited to a retreat by House and Senate Republicans, he took them up on their invitation but insisted that the event be televised. Republicans agreed and so it began with a brief introduction and then down to business. The President gave the Republicans a lesson in being honest with constituents and the American people, in an unscripted format. His command of facts was truly impressive and inspirational. The contrast between this President and President Bush couldn't be more striking. One commentator reported one Republican leader as saying that they should never have agreed to have the event televised because the President did so well and making Republican arguments look so empty of substance. Fox news even decided to cut away and trash the President rather than allow their viewers to hear the President answering Republican questions in a masterful way. WE need more of this type dialogue in our politics no mater what side of the debate you are on. It forces competency to rule rather than quick shots from either party. Independents had to like this format and discussion more than both Parties. I hope we see more of it. Stay tuned!