Bear Market Looms As Major Indexes Keep Falling

Major U.S. indexes have broken key technical support levels, leaving the stock market
vulnerable to further declines and the turbulence could get worse, according to chart watchers.

With the Dow now holding precariously above 12,000, a drop below this psychological level could help confirm the worst fears of investors -- the onset of a bear market, stock
technicians said.

Kathy Willens / AP

A bear market is defined as a downturn of 20 percent or more below a record closing high. The Nasdaq Composite index has already fallen 17 percent from its 52-week closing high set in October.

The Russell 2000 index of small-cap stocks entered bear territory Thursday. It is down 21 percent from its record close set in July.

Market technicians said it was now an almost sure bet that the Dow will slid below the milestone level after it broke through key support around 12,500 this week.

Even if the move is temporary, it still will rattle nerves.

Analysts say the 11,500-11,600 levels aren't out of the question as the levels where the index could test near-term support, but even at that base, there could yet be more downward impetus as capitulation fuels more selling.

"There's a larger trend change taking place here," said John Kosar, market technician at Asbury Research in Chicago.

"The breakdowns that we've had through support this week indicate that there's now a more sustainable top in place and it looks like we're entering a bear market."

Technically, the drop below 12,000 will serve as further confirmation of the breakdown that has wrecked the market's start to 2008 as worries about the U.S. economy mount.

But the biggest toll is more likely to be felt at a psychological level as some investors take the breach as indicating the market's growing weariness and possibly the end of the bull market that begun in 2002.

In Friday's trading, the Dow shuttled in a wide band, between 12,032.40 and 12,341.54.

But it spent more than a fair amount of time near the lower range on concerns that a White House effort to stimulate the economy would not be enough to forestall a recession, putting
the broad S&P 500 on track for its worst week in 5-1/2 years.

The market's fixation with the Dow's 12,000 level stems partly from the fact that only once has the index closed below 12,000 since it first pierced it in October 2006. And as such the breach of the level could mark key psychological turning point, according to analysts.

The S&P 500 is also not offering an encouraging technical picture, after the benchmark index slumped through support at 1,375 Wednesday, taking the broader market to its lowest in 15 months and below its mid-August low.

"To me it looks like you could be headed to 1,220-1,200 range on the S&P 500," said Bruce Zaro, chief technical strategist at Delta Global Advisors Inc in Plymouth, Massachusetts.

"You could make the case there's some minor support in the 1,320 range because that's the bottom of its trading range but that typically offers some fairly weak support."

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