Could the Dow really fall to 3,500.....or BELOW???? Could the S&P really fall to 400 or below??? Surely not you scream in a burst of utter financial defiance. But oh little grasshopper I say that it can and that it probably will.

How can I believe such foolishness? Just take a look at the BKX index on a monthly chart. That's the banking index in case you don't know. It consists of those pesky banking stocks everyone used to love. How far has it fallen? How about from $120 or so to yesterdays close of $31.56. How large of a decline is that? Oh, about 74%, that's all. And it doesn't appear to be finished just yet. How about somewhere between here and $12 for a final bottom? That would mark the 90% level. 

But here's the really important part. Financials typically lead the market. They topped first in early 2007 and they'll probably bottom before the broader indexes. It appears that they'll bottom at much lower levels, maybe closer to the 90% mark. 

That's an indication to me that the broader indexes will almost surely move much lower. I expect that decline to resume either right now or later this spring. The market action lately gives the indication it could be sooner rather that later. 

So do the math on the Dow and S&P. What would a 75% decline come to? On the Dow just using 14,000 as the top takes you to 3,500 after a 75% decline. Using 1575 on the S&P takes you to 393 after a 75% decline. Remember, the BKX has already declined 74% and may go further so don't think these numbers are "impossible". 

And in case you think that "surely the Fed won't let that happen" look at how their "rescue" of the banks has gone.....BKX down 74%.   
I rest my case.