The credit markets are extremely stressed, with the price of insurance on the riskiest companies setting records. This partially due to funding pressures at banks before they close their books at the end of the 1st quarter. The but the volatility has been low during the last few weeks as the stock market plunged. This suggests two things, sluggishness and lack of capitulation. This makes me think that everyone who owns stocks has either hedged against a further fall or has already decided to either bail or is resigned to lose more money. Therefore, absent the failure of a big bank, or some grave political uncertainty, the stock markets appear to be due a short term bounce of 20-30%. But the only certainty is that they will eventually have further to fall. We were too clever getting into this mess to get ourselves out so easily. And no one has given up completely yet. Everyone seems to think the stock market can't get any worse. Until everyone despairs, it will keep falling.
In inflation adjusted terms, 6800 marks the peak in 1966 and 4800 marks the peak in 1929. I personally believe that 4800 is where we are heading. (To see this chart click here) Below is a non-inflation adjusted chart showing the century long term trendline. According to this chart there should be support around 4800 as well.
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