Market Ends August & Year In the Red:

The major market indexes ended lower last month and are down for the year. As the US dollar has recently advanced, fears of a global economic slowdown have been escalating. For the year, the Dow Jones Industrial Average has shed -4%, the S&P 500 Index is down -6%, an the tech-heavy Nasdaq Composite is leading the major averages lower, down -6.8%. The confirmed rally that began on the July 7, 2010 follow-through day (FTD) ended on Tuesday, August 24, 2010 however, a new FTD emerged on September 1, 2010 which confirms the latest rally attempt.
Before we address the current market outlook, it is important to step back and put the recent action in proper context. Since the March 2009 bottom, the major averages have experienced explosive gains on the simple premise that the global economic recovery will be robust. That notion helped the benchmark S&P 500 Index rally +83% before reaching a near-term top of 1,219 on April 26, 2010. Since then, notions of a robust recovery have come into question, especially due to the ominous debt levels in several European nations and the major averages are each down –11% to -17% from their 2010 highs. The euro, which has also enjoyed healthy gains since March 2009, topped out in December 2009 and has steadily fallen during the first half of 2010, then rallied smartly in July, but lost ground in August. Looking ahead, it is imperative to monitor the direction the euro is heading in order to better gauge investors’ world-wide collective appetite for risk.   
Bullish Case:
History shows us that most bull markets last between 18-36 months before they fail. Therefore, the fact that we are only beginning our 17th month bodes well for this bull market. It is also somewhat encouraging to see nearly every government across the globe step up and unanimously infuse an unprecedented amount of capital into the global economy and more recently, reiterate their stance in recent weeks to infuse more capital if needed. This unified action saved the global economy from entering a deeper recession and laid the foundation for this massive bull run. On average, central banks around the world are still keeping rates near historic lows to help spur economic growth, while a few have begun raising rates. As of this writing, the major averages continue to find formidable support near their 2010 lows. As long as these levels hold, the intermediate and longer term picture remain somewhat positive. However, if these lows are breached, then all bets are off.  
It is also somewhat encouraging to see the bulls show up and continuously defend support. Since the April 2010 highs, the major averages have pulled back a handful of times, each somewhat mild, not exceeding the -20% level which technically defines a bear market. Therefore, until the major averages pullback over -20% from their recent highs this could be interpreted as a temporary correction, albeit a steep one, before the bulls again return and resume this powerful uptrend that began in March 2009. A characteristic of this bull market and others is that every time the market pulls back the bulls promptly show up to quell the bearish pressure and defend support. That said, until support is breached, the bulls deserve the benefit of the doubt. 
Bearish Case:

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