S&P 500 Violates Key Support on Heavy Volume

Thu 11/20/08 (SPY @ 75.45) You know what they say about catching a falling knife... The S&P 500 (I use the SPY as a proxy since that is what most of us trade), plunged through the ice after bouncing off it 3 times. It was a decisive, high volume penetration and the nearest support would take us back to the lows of 2002-3.
A breakdown of the sector action reveals that the story was overwhelmingly energy and financials. There has been clear capitulation in the latter, but the former makes little sense on a long term fundamental basis. We are not, despite the pledges of the Obama administration (how I like writing that!) going to stop using fossil fuels anytime soon, or if we aren't, China won't, so I imagine once this panic (and I continue to believe it's just that) passes, energy will surge again. If you have to back up the truck and buy anything, but XLE.
But right now, keeping your powder dry is prudent. If you reentered near what seemed a market triple bottom, no problem. Take your losses, get flat again and wait for a reentry point, which now would be a decisive close above those lows (in the 84-85 area).
This is what bear markets feel like. Capitulation, a sense of panic, everyone taking out companies, good and bad, and shooting them. Some deserve their fate; most don't. Choose the survivors which are starting to trade as call options on the recovery of the American economy and you should do very well, perhaps not in the next few months but certainly in the next few years or decades.
By the way, if you were using a trailing 20 day buy stop to reenter the market and a 20 day sell stop to exit it, you would have been SHORT THE SPY SINCE 125 with no false buy signals on the way down!! That's a 50 point open profit! The current buy stop if you are using this system is 100.86 but will probably drop soon.
If you are very squeamish at this point, you may want to lighten up, but immediately put in a buy stop order (or else you will be too scared or distracted to reenter the market), adjusting as the market declines.
Caveats: today is options expiration so that may have had something to do with yesterday's volatility and high volume. Sometimes markets snap back in the opposite direction the Monday after. Stay tuned.