Stocks - Bearish Feeding Pattern

The stock market is facing multiple problems including a slowing economy, housing bubble implosion, credit crisis infection and deteriorating earnings for many sectors.

Let's take a closer look at corporate earnings, the engine that drives Wall Street. Earnings per share for the S&P 500 declined 4.2% in 2007. This happened despite the fact that most analysts had a positive outlook for the year at the end of 2006.

Many analysts expect earnings for the S&P 500 to recover in the second half of 2008. You can see how much investors trust this outlook by the S&P 500's chart action. Look at the monthly chart ...

You can see how the S&P 500's sell-off right now looks very similar to the one in 2000-2001 and 2007-2008 (so far). Both patterns show a choppy top followed by an extended sell-off.
Why is this important? Well, chart patterns often repeat themselves because investors tend to repeat their mistakes.

That means if the S&P 500 does repeat history, it could go as much as another 40% to the downside!

Now, not all sectors are performing the same. Financials are getting pummeled mercilessly while the energy sector looks like it's still in a bull market. But there's plenty to indicate the broad market could go lower in a sell-off that could last a long time.