Final Capitulation...

The Dow slumped almost 300 points today as the ISM index, although higher than expected, was once again lower than the previous month as the recession deepened. In fact, the Dow also officially lost more than 50% of its value since its peak last year so far. Indeed, the market action was clear cut today as what remains of the bulls got slaughtered early in the morning, leaving the rest of the day to the bears.

The strength of this bearish breakout so far is definitely what is to be expected for a final capitulation before a recovery. By final capitulation, I mean a final and painful leg down before the stock market reaches a real bottom. It is one final leg with the worst economic data for this crisis and will bottom when important data such as the unemployment rate coming up this Friday (see economic calendar) reaches its peak. I was actually expecting this final capitulation to happen sometime late last year when the Dow went sideways but what I did not foresee is such an extended sideways movement. Yes, with no clear support levels in sight, the Dow is going to free fall until investors step in to create a support level.