The S&P 500 has continued to slide off after closing below its lows at 741. We continue to maintain our view that this marks the beginning of the third leg down in the bear market.
At 741, the S&P 500 has already breached the 2003 base from which the 2003 to 2007 bull market ran up from. To find the next support level, we have to go all the way back to 1996. where we find a low at the 605 level. 605 also coincides with the psychological 600 level. Apart from this there is little other support in sight.
In the weekly chart above, we have shown the bear market from its inception in October 2007 until today. Swing highs and lows delineating the first, second and third legs of the bear market are denoted in red, while the rallies in between are in green. What is slightly worrisome at this point in time is the sharp rate of decline that the S&P 500 has been undergoing for the past 3 to 4 weeks. Typically, the third leg down of the bear market is milder in both magnitude and also rate of decline than the second leg.
However, at this point in time the initial ‘push off’ from the 741 low is rather sharp. If this current rate of decline continues, it would take us to the 600 level rather quickly.
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