Last week the S&P 500 broke down out of the range of about 850 to 1000 that it had been in since October 10. This range appeared to be part of a classic bottoming process with a volume surge followed by mulitple retests of a range on declining volume. The slide to new lows last week – at one point taking the S&P 500 back to levels first reached in 1997 – was not on a volume surge like October 10 one. Instead, trading volume was relatively moderate, indicating many market participants had already capitulated during the selling climax on October 10. Last week’s, new low was likely the result of a lack of buyers while some forced selling by hedge funds and institutions lingers. This fading selling pressure, along with the 75% peak-to-trough decline in the S&P 500 Financials sector nearing the 81% peak-to-trough decline of the S&P 500 Information Technology sector during the bear market of 2000-2002, suggests the additional downside may be limited.

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