Merrill Lynch's recent wave of write downs is another sign that we're still only halfway through a bear market, said Steve Hochberg, chief market analyst for Elliot Wave International.
"It's a process that's working its way through, but we don't think we're near the end of it yet," Hochberg said. "Bottoms are created when you have the greatest amount of pessimism. It's a little perverse, but I think people need to get scared." (See Video)
Put-call ratios and the volatility index, two measures used to gauge capitulation, have yet to reach levels associated with ending previous bear markets, Hochberg said. The VIX stands in the mid-20s, having briefly hit 30, whereas it read closer to 40 during past market lows.
"I think the VIX can get even above that in this decline," Hochberg said. "Somewhere north of 40, maybe north of 50 would do it, at least on an intermediate basis."
But the best measure of market valuation may stem from dividends, because companies simply can't pay them if they don't have the cash, he said. On the top day in 1929, dividend yield stood at 3 percent, and the market fell 80 percent. It is currently at less than 3 percent.
"You're not going to get to a low until valuation levels correct, until sentiment gets to levels where people are scared," Hochberg said. "I think you've got to get to that capitulation stage where people throw up their hands before you put a low in the market."