Market capitulation now on point. The Dow and S&P 500 are ready for bigger falls.

As discuses in The Dow touched capitulation point at 10,000, the psychological level on the Dow is the 10,000 when the bull run that occurred last year it was able to smash through the 10,000 on the 5th November 2010 (shown in vertical line - blue) and rallied into tight range, the dow then collapsed out of that tight range on the 20 January 2010 (shown in vertical line - red) and struggled to rally back into those ranges again. The current correction on the dow started on the 3rd May 2010.

Please refer to chart:


So we are back to the capitulation (downtrend) or psychological point of 10000, from here we should see some large losses until a bottom is formed, at this point one could guess that the dow could fall to lows of 9000.

The big question is do we rebound on goverment stimulus money printing, or are goverments essentially exacerbating the destabilization the markets with intervention, meaning that they will try and curb speculation, short selling etc. The point is a debt crisis in one country is a contagion crisis, especially when LIBOR spreads rise thus effecting interbank spreads. The big unknowns of course are Asia, especially China. Does China continually want to have a devalued currency on top of a astoundingly huge bubble in property? Now Taiwan is showing bubble signs in their property markets. A regional war such as Nth/Sth Korea could also economically destabilize the whole Asian region. If this is the case, there is pretty much nothing goverment/s can do in reinvigorating the markets, there will be an eventual bottom; but if we see 'worst case' scenarios such as a debt contagion, war and a China slowdown. We could see some historic sell offs in the equity markets.