Remember the old Looney Tunes cartoons where Bugs Bunny would scratch a line in the sand and dare Yosemite Sam to step over the line. Eventually Bugs would draw one at the edge of the cliff and Sam would step over it and plunge 500 feet to the ground. Well that is kind of where the market is right now.

The Dow has moved through the lows of last November and is now within a chip shot of the lows from 2002. The Dow bottomed out at 7,197.49 back in October, 2002 and we are one bad day from blasting through that level.

Now I know I have been pounding the table about 2009 being a good year for the stock market over the last few months, but so far, I have been dead wrong. It is only February, so there is still time for a rebound.

My bullish stance coming into the year was based on the fear that I was seeing towards the end of December and the historical comparison to the ’73-’74 market, I saw the market improving dramatically this year.

The problem is the market continues to get pounded with bad news day after day- fear of banks collapsing, terrible housing numbers, employment issues continue to mount, etc.

Normally investors become immune to all the bad news toward the end of a bear market/recession, but that hasn’t happened yet in this current crisis. Does this mean that we aren’t at the end yet? Possibly, but investors continue to flee the market.

In last week’s newsworthy section, I used a clip from Briefing.com that discussed the outflows from equity mutual funds. Well on Friday, I saw the numbers through February 18. According to TrimTabs Investment Research, the outflows from February 11 to February 18 were $10.7 billion. They also reported outflows in U.S. equity based ETFs of $6.9 billion.

Is it any wonder the market went down last week? A total of $17.6 billion flowing out of mutual funds and ETFs in one week creates a lot of selling pressure.

So where do we go from here? The 7,200 level on the Dow is absolutely critical. It is that line on the edge of the cliff that Bugs has drawn. The market is being played by Yosemite Sam and he is edging towards that line. A step over that line and it is a drop of another 3,200 feet (points that is) down to the next layer of support.

Good luck and good trading,

Rick

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