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Dow zero? At this rate, we'll almost be there by Halloween

October 7, 2008 |  4:48 pm

Just 19 more days like this one and the Dow Jones industrial average will be at zero. And we can all start over from scratch.

Stocks were hammered today by what many traders described as another round of desperation selling.

The Dow lost 508.39 points, or 5.1%, to 9,447.11, its lowest since September 2003.

We said goodbye to Dow 10,000 on Monday. Today, the Standard & Poor’s 500 index closed below the 1,000 mark for the first time in five years, tumbling 60.66 points, or 5.7%, to 996.23.

The severity of Wall Street’s decline over just the last 2 1/2 weeks has been breathtaking. By the classic bear-market yardstick -- a minimum 20% drop in a major stock index -- the S&P 500 now has experienced a bear market in just 12 trading sessions: The index has fallen 20.6% since Sept. 19.

Nysetrader That would be a bear-within-a-bear. Measured from its record high a year ago, the S&P now is down 36.3%.

Yes, investors are fearful of what will happen to the economy because of the credit crunch. But when selling reaches this magnitude, some portion of it surely has to be disconnected from economic fundamentals.

Art Hogan, veteran analyst at Jefferies & Co. in Boston, noted the relatively uniform percentage declines in broad market indexes today: 5.4% in the New York Stock Exchange composite, 5.6% in the S&P small-stock index, 5.8% in the Nasdaq composite.

"That tells you it’s just waves of people selling everything that’s traded," Hogan said.

Who is so desperate to get out? Many analysts point to hedge fund managers, who are believed to be facing another round of massive redemption notices from clients who want their cash back.

"You’re seeing selling by people whose hands are forced now," said Christopher Johnson, head of Johnson Research Group in Cincinnati.

Ditto for stock mutual fund managers, as retail investors join the exodus.

Then throw in gun-to-the-head selling by investors who bought stock on margin and now are facing margin calls by their lenders -- demands to put up more cash to offset the tumbling value of their portfolios.

As I noted in this post on Monday, everyone’s looking for signs of capitulation -- a final deluge of selling by investors too disgusted and demoralized to hold on any longer.

"Bottoms don’t happen until everyone walks away," said Johnson.

The last two days certainly have had the feel of capitulation. But is it enough, already?

Some analysts say there still are too many market pros reluctant to exit stocks because they’re sure a bottom is near.

Mark Hulbert, who tracks investment newsletters, wrote today on that Monday’s market dive -- which saw the Dow off 800 points before recovering about half that loss -- probably was another capitulation false alarm.

"An eagerness to declare that capitulation has occurred probably means that it hasn't," Hulbert wrote. Read his piece here. And be prepared to weep, if he’s right.

Photo: On the NYSE floor today. RIchard Drew / Associated Press