Get Ready For a Relief Rally. And: How Bad Can it Get

Today's 777 point loss on the DJIA is the largest point loss ever. I don't think it is in the top ten largest percentage losses, I haven't looked. However, as Tech Trader Daily points out, the Nasdaq's losses definitely are. A sixty percent retracement of today's (and tomorrow's?) decline is well within the bounds of possibility (I won't go all Fibonacci on you). Then lower.
From the Big Picture:
Yes, Virginia, this is a crash

Nasdaq down 8%, S&P500 off 7.93% Dow off a mere 6%. Set your downward targets to SPX 975, plus or minus. That is both a technical target (breakout in 2003) and fundamental target (15X $65 SPX Earnings)...MORE

From Tech Trader Daily:

4:35 p.m. EDT
Nasdaq's Plunge: Large-Cap Tech Takes A Mammoth Hit; Top 10 Most Actives Lost $111 Billion In Market Cap
4:17 p.m. EDT
Nasdaq Plunges 199 or 9%; Among Worst Days Ever
3:35 p.m. EDT
Nasdaq Headed For One Of 10 Worst-Ever Perecentage Drops As House Votes Down Bailout Plan

From MarketBeat:
Four at Four: The Market Gets Nothing, and Doesn’t Like It

Posted by David Gaffen

A Bad Day All Around

Index	Close	Change
Dow	10365.45	-6.98%
S&P 500	1106.42	-8.79%
Nasdaq	1983.73	-9.14%
Oil	$96.37	-9.8%
Gold	$888.20	+0.6%
Euro/Dollar	$1.4465	-0.8%
Dollar/Yen	104.27	-1.59%

Criticism of the bailout plan in the form it morphed into over the weekend was rife — some were concerned about the equity participation, some about the hesitant structure — but most were of agreement that something was better than nothing. Instead, the market got a whole lot of nothing Monday, as the bill was swallowed by partisan bickering and strange attempts to blame the House speaker for ruffling feathers. “We had taken for granted that we had a bill passed and we are shocked to find out that was not the case,” says Art Hogan, chief market strategist at Jefferies & Co. “Now we need to see if we can get back to the drawing board and get something passed this week.” What resulted Monday was the 17th-worst percentage-point loss for the Dow industrials in history, as the 30-stock average lost nearly 7% of its value in a session fraught with peril, one where the selling picked up at the end of the day, in what some called “forced” liquidation of positions. “If you watched the S&P at the end of the day, it went from down 81 points to down 99 in a moment – it was very big and very bad, right at the end of the day,” says Kim Caughey, portfolio manager at Fort Pitt Capital Group in Pittsburgh...MORE

From BloggingStocks Sept. 26:
Cramer on BloggingStocks: Worst-case scenario: Dow under 8400

Without the Paulson plan, or if the plan is so watered down and delayed, I have been saying all bets are off and we could be in for a huge swoon. How huge?

I like to sit down and noodle on the actual components of the Dow Jones Industrial Average to give you a real sense of what can go wrong. And there is so much going wrong. The credit markets are vanishing, the earnings are vanishing and the only hope is a plan that ignites credit markets, forces money off the sidelines and gets this economy and the worldwide economy moving again....MORE

A couple reminders-
CI, Sept. 17:
How Bad Can it Get: Stock Charts 1928-1932

Earlier today I reposted a classic cartoon from the New Yorker (scroll down or use the Blog Search Box for cartoon) that graphically shows how bear markets can trick you. A real bear will keep teasing until it has sucked every dollar available from the buyers by appealing to the hope that "This is the bottom".

Credit Writedowns had a page of eight DJIA charts that give a stark portrayal of how relentless the '29-'32 down move was. From 381.17 to 41.22 in 33 months. Anyone who was fully invested on September 3, 1929 and rode the whole rollercoaster waited much of their adult life before the DJIA got back to 381 in 1954. I'll put the link to their homepage below the charts, click any chart to enlarge. And no I don't think we're in for an 89% decline. But it could be 40% from the 14,164 closing high last October. That's the same order of magnitude as the '73-'74 bear (although with inflation that was a 70%+ loss of buying power).
Dow 8500 is well within the realm of possibility. From today's 10,609 close that is a nasty prospect....CHARTS

A 40% decline from 14,164 puts us at 8498. Here's the cartoon referenced above, posted Sept. 5:

...So we can look for a bounce but think of these names as a trade; bear markets can suck you in. When I first came to the market, one of the older traders told me he was saved in the '73-'74 bear by a cartoon:
(click to enlarge)

That's Alfred Frueh's January 16, 1932 New Yorker classic, "Just around the Corner", commenting on President Hoover's statement that "Prosperity is just around the corner".