1) The M pattern on the S&P (with peaks in 2000 and 2007) predicts that all growth back to the base gets wiped. The base of the pre2000 rally started in 1995 at ~450.

2) The absolute worst case scenario is to look at the GD and determine how many years get erased after the crash from the parabolic blow-off. The trough in 1932 (on the DOW) wiped out 30 years of gains. Wiping 30 years off the S&P puts it at ~100 and the DOW at ~800.

Both of these statements sound like tinfoil, but the first is basic technical analysis and the second is just a fact. In fact, there was another crash similar to 29-32 around 1840 that also wiped 30 years.

I just bring this up because 600 on the S&P may prove conservative by the time we are done. On the other hand, I hope I am DEAD WRONG. I hope we bounce at 600 never look back …I don’t even want to imagine what the S&P at 100 implies. It is the stuff of nightmares.

“Odds favor a break down …and it usually marks the half way point to the bottom. Depending on the speed the market moves, the time target is Tue-Thur this week.”

What I meant was that the triangle or flag marks the half way point (which we are in at the moment). When it breaks the triangle it is hard up or hard down.

Also, I think the turn date is actually Thur +/- a couple of days. I follow McHugh and Denninger most closely …and McHugh’s turn date is Thursday …the last turn date he had was spot on, but as indicated this is an inexact science (and could even go the other direction). Regardless, it should be an interesting week!

Finally, I have immense respect for Mauldin, as I think you do. Given the PE estimate of 20.2 you mention, I couldn’t agree more that there is more downside potential. Analysts are notoriously optimistic, which means that the “E” (i.e. earnings) will probably be lower than they predict. A good bear market bottom should produce PEs in the 8-12 range …and 20.2 might be a low estimate for 2009 given the probability of optimistic analysis. So just doing the math, cutting the “P” in half (i.e. stock prices) might not get us there if earning disappoint …ouch!

This would be the “gates of hell opening” scenario (S&P spiking down into the 400s). This is economic Armageddon, which no rational person wants. And it sounds like tinfoil talk, but that’s the math. It fit’s McHugh’s analysis though, which says after the next bear rally we have another devastating leg down in 2009, which sets new lower lows.

That leaves technical analysis, which tries to interpret patterns. It is based mostly on investor psychology, but is far from an exact science.

Currently the S&P is forming a triangle however, with tend lines converging above and below. When this finally breaks significantly through the trend line it should go screaming one way or the other.

Odds favor a break down …and it usually marks the half way point to the bottom. Depending on the speed the market moves, the time target is Tue-Thur this week.

This would make your new targets about right …and they could be hit in the next couple of weeks. At which point we get a serious bear rally for a few months.

The alternative is to break up out of the triangle and start the bear rally immediately.

Unfortunately this volatility is exactly BECAUSE of the accounting uncertainly you pointed out MAS.

Also unfortunate is that these kind of moves are indicative of a continued bear market …the last time we had moves like this was 1929 to 1932. The top 9 of 10 percentage moves were in these years …the other one was last week!

Disclosure: I’ve been in cash for over a week now …just afraid to wake up to a huge gap (up or down) and have my head handed to me. On a serious break of the triangle I will start trading again though (with the trend, long or short).

Warning: Wait for a significant break if you play this …the pros love to pump it OVER the trend line and then reverse hard to fake you out.

That is exactly what happens in this country every time another bank goes out of business. JP Morgan pretends to be chivalrous as they made a back room shady deal with Sheila Baird of the FDIC. They take the Assets (deposit accounts), and leave the huge liability side of the failed bank for the taxpayer to clean up the mess. If that’s not 4 year old Monopoly, I don’t know what is.

I’ll refrain from an S&P target, but instead remind everyone of a famous quote:

“The markets can remain irrational longer than you can remain solvent.”

The fair value for the S&P is certainly lower, but I’m just not willing to throw to much of my money against the market because there are to many bozos changing the rules of this Monopoly game virtually every other day.