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Posted on 11 March 2013 | 5,244 views

S&P 500 Heading Into a Bear Market

This current correction began quietly on July 8th but didn’t really accelerate until ten days ago and  escalating worries about the U.S. economy and Europe seem to be forefront.

While the offered causes of the stock market sell-off are numerous, the benchmark S&P 500 has officially slipped in to a “Correction” having now fallen 10% from its 52-week high hit just 3 months ago on May 2nd. By that same measure, a whopping 40% or 200 stocks within that S&P 500 are now officially in “Bear Market” territory, having fallen by 20% or more from their recent highs.

The S&P 500 fell for seven straight days before rebounding Wednesday. Its losses since its May 2nd intraday high have now reached more than 10 percent, putting it in correction territory. The CBOE Volatility index (Chicago Options: VIX) jumped to its highest level since March.

The dam broke and it’s a capitulation sell-off with all asset classes on elevated volume and it’s indiscriminate — you have to look pretty hard to find anything technically that looks constructive.

Analysts see another 5 percent to 8 percent in losses in the S&P 500 from this point given the strong degree of pessimism in the market.

“You can pick your story for why we’re seeing continued pressure. Europe is probably the most prevalent one today, but there’s the whole unfortunate process with the debt ceiling, combined with weak economic numbers here and abroad. That makes for a perfect storm for stocks,” said Walter Todd, who helps manage $950 million at Greenwood Capital in Greenwood, South Carolina.

In the past month alone, 16 of the 24 industry groups have fallen 10% or more with particular weakness seen in small and medium sized companies as well as in the Transport sector which has gone from an all time high to a 9-month low in the past 30 days. This is a particularly harsh slap down given the economic importance afforded to this highly cyclical sector and what strength (and weakness) in it has historically predicted.

Interestingly, the bias for the biggest companies is clear within the S&P 500, where 4 of the 6 largest stocks are up in the past month Apple (Stock Symbol: AAPL), Microsoft (Stock Symbol: MSFT), International Business Machines (Stock Symbol: IBM) and Google (Stock Symbol: GOOG), versus only 2 of the smallest 100 show a positive 30-day print Lexmark (Stock Symbol: LXK) and Urban Outfitters (Stock Symbol: URBN).

While the U.S. market is down 10% from its high watermark in the past year, that pales compared to the collapse that we have seen in some key markets in Europe, Asia, and South America.

India is off 16%, Brazil down more than 25% , while European markets like France, Spain, and Italy are off 20 to 30% from their recent highs.

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