The major indices are at the crossroads. I’m sure you’ve heard by now that the Fed is once again considering a bailout of the economy under pressures from the Wall Street crowd to lower interest rates.

My gut tells me that the markets are on the verge of folding at the knees. Obviously, you can only lower rates so far. I really think people are beginning to wonder whether the Fed’s actions are sustainable and actually healthy for the U.S. economy in the long-term. For me, this question has already been answered and it shouldn’t be long before massive liquidation takes place in an effort to preserve capital.

This morning I noticed that the S&P500 formed a bearish head-and-shoulders pattern on the one-year weekly chart and the key indicators that I follow have turned for the worst. I expect the neckline support to buckle around $140. If the index trades lower than this price, prepare for significant downside.

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I cornered Market Analyst and occasional guest on CNBC, Adam Lass at the water cooler; here’s his take:

“The line in the sand has been drawn. We’re simply at the point where the bulls and bears must fight it out to determine the future direction of the markets.”

In my own review of the current situation, I would have to agree with Lass’ insight. As one who utilizes technical methods in a different fashion than Mr. Lass, it is even more relevant that we have both come to the same conclusion.

Good investing,

Stephen Oakes
Editor, Volume Spike Alert & Black Sheep Trader