My best guess is we continue to see rallies that are sold. I believe technical factors are important because so many institutional traders follow them. My belief is a lower market is inevitable when valuations are stretched. Market observers will ascribe an event as the catalyst. Once risk premiums are whittled from stocks almost any event becomes an excuse to sell.
That said, if we see a significant break below 1,800 on the S&P 500, there is little technical support until 1,550-1,575 (corresponds to 2000 and 2007 market highs). Also, this level is significant as a starting point for aggressive QE from the Federal Reserve (spring 2013). If we hit this level it may garner some support for awhile, but I see another leg down to 1,100-1,300 S&P. This process could last another 6-12 months.
Of course investors could, with Fed help, launch another period of speculation. I find this unlikely because it appears the trend is moving decidedly in the other direction.
I started my response with this is "my best guess."
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