Where will it end?

We could see the selling intensify in the next few weeks. Sure the market has been selling off for awhile, but we still lack that capitulation spike that signals a temporary end to the pain. Here is one indication from the DOW chart:




This is no final bottom though. Sure "The news is always the worst at the bottom". However, I think the worst is yet to come. The credit market, which is 10x as large as the stock market, has only just started contracting.

We have yet to clear the world's debt off the table. Just in the U.S. the aggregate of national, corporate and consumer debt is near 400% of GDP. Prior to 1929 it got as high as 270%. Western European countries are likewise awash in debt. Britain, Ireland, Spain, Greece, Italy are all seeing leveraged bets into emerging markets unwind. Austria alone lent 70% of it's GDP to the Eastern European real estate bubble. This is no mere recession. The post-1929 chart shows the tenacity and ferocity of a full blown credit contraction. In that period the stock market corrected a full 89% of it's former high. The only difference between now and then is the causative measures this time are much worse.

Rolling on the floor.

A couple of charts this morning to show what may be a new leg down.

S&P 500
DOW
In the case of both the DOW and the S&P we see the market is more and more comfortable at their former floor levels. For the DOW, 8000 is violated with regularity and ventures above the 50DMA are quickly squashed. The S&P 500 is a bit more resilient but still digging away at its floor.

Indications are we will test the November lows before long. If history is any guide this next leg will be less a violent plunge and more of a slow bleed. The Fibonacci Fan illuminates some possibilities should a new leg commence. A touch of 560 seems plausible, however I suspect this is too much too soon. 765 looks more reasonable.



Key to this theory is the 50DMA for the big three. The Dow and the S&P haven't sustained more than a quick peek above their 50 DMA . The Nasdaq (not shown), while stronger, looks tenuous and lends little credence to a sustainable rally. More bleeding seems inevitable.