The S&P 500 fell more than 6%

The S&P 500 fell more than 6% on both Wednesday and Thursday of this week, something that hasn’t happened since July 20 and 21, 1933, in the midst of the Great Depression, when panic selling was brought on by collapsing commodity prices. While many commodity prices are again in free fall, I haven’t seen definitive signs of panic selling. Rather it seems we are seeing persistent redemptions and reliquification trades stemming from margin calls. The pronounced double top that has been formed by the S&P 500 will probably cast an ominous shadow for quite some time. Eleven years ago and just eight points lower than the S&P 500’s close yesterday, Fed head Greenspan warned against irrational exuberance. I wonder if today he would point to irrational pessimism? With this week’s violation of the potential support at the 2002 lows and the obvious penetration of the long-term support evidenced by a rising trend line for this index which dates back to 1975, we face the potential for a protracted, multi-year period of trendless markets. First, of course, we will need to find a bottom. Once there, I expect sideways trading within a fairly broad channel as demographics overwhelm the engines of recovery and growth that have been in place for the last sixty years, and won’t appear again for ten to fifteen. Perhaps today’s big move up on robust and expanding volume is the start of something positive, but I tend to think it is more a relief rally, call it the Geithner rally, as a bit of uncertainty is removed from the marketplace. My guess is that much more progress in price levels and elapsed time will need to be seen before we can break out of the declining channel formation now in place. A similar strong follow-through on Monday, perhaps a 90% up day, would be nice. Let’s hope we get it. If we do, we may begin referring to the declines of Wednesday and Thursday as the final selling climax for which we have all been hoping.