The Dow and two foreign indices paint a grim picture for the bulls

Along with the normal pressures from weak European economies and a failed budget committee, investors had to consider the impact of slower-than-expected GDP growth. The Fed said that Q3 GDP was revised down to 2% from 2.5%. It also announced a new round of stress tests for U.S. banks.

But the Fed also said that it may take ��new steps�� to bolster the economy, but no new simulative measures were announced. And the Richmond Fed said that its manufacturing index improved last month to zero from minus six the month before.?

Stocks lost ground again with the Dow Jones Industrial Average falling 0.46%, the S&P 500 down 0.41%, and the Nasdaq off 0.07%. It was another light-volume day with 877 million shares trading on the NYSE and 460 million on the Nasdaq. Decliners were ahead of advancers by about 1.7-to-1 on both exchanges.

After stubbornly holding at a support line at 11,650 and its 50-day moving average, the Dow finally broke through both. Its Relative Strength Index (RSI) line is still in neutral territory with a distinct slant down meaning that prices have room to head lower.?

The breakdown of this senior index is significant because it represents the highest quality stocks, many of which pay above-average dividends. It is this group of blue chips that many analysts have been recommending as a better investment than bonds because of their higher yields and potential for growth.?

Yesterday we studied the head-and-shoulders top on Germany��s DAX, and today we��ll look at two other major foreign indices:France��s CAC 40 andChina��s Hang Seng.?

The CAC 40 index is composed of the 40 most significant values of the 100 highest market caps on the Paris Bourse. Its chart is similar to the DAX, but where the German index has broken from a clear head-and-shoulders pattern, the CAC 40 has plummeted from the low trendline of a short-term channel down.

Note its RSI, which is rapidly falling. The chances are high that the September lows in th! e CAC 40 will not hold and that a new bear market leg will be established.

While the Hang Seng index��s bear market pattern is not quite as ominous as the CAC 40, it is nevertheless in a downtrend. It currently rests at just above 18,000, but a break of that line will no doubt lead to a test of the October low.?

The RSI of both the CAC 40 and the Hang Seng indicate that declines have further to go on the downside with no support until they reach the September/October lows.

Conclusion: The three indices paint a grim picture for the bulls.?Each has broken through important support zones, but it is the Dow that has the best chance of holding above the October lows. Its deep range of trading that began in August could stall the decline enough to move into the new year and a better outlook. For now, however, the bear reigns, and your best bet may be to play the market through options.