Dow approaching critical support level.

Today investors became nervous as the Dow plunged close to the historical support levels. The fear is that although the Dow has lost approx 42% from it's peak, if the Dow breaks the support, the next support level is 50% lower than today's closing level.

In reading this Dow chart, the question all investors must ask, was the Dow's parabolic rise during the last 30 year period an engineered credit expansion? If so then, will the Dow plunge to at least the 1995 pre- Fed rescue support level ?

As of tonight, the Fed's low interest rate policy is not working. Banks and all the near-banks ( AIG, GE, all the Mae's, Mac's, Amex, etc ) have toxic debts, underwater derivative trades, and high leverage ratios. The bailout funds are being drained into this vortex. Credit markets remain essentially closed. This in turn is crashing the credit society and may erase the gains during the credit expansion era.

Previous market recoveries relied on some segment of the economy to lead the way. However, this time none is able. The car industry is in peril. All the commodities are down risking both the natural resource and agricultural industries. The housing and commercial construction industry is down for the count. Mortgage rates remain high. Retailers are failing. Wall Street is laying off. After hours tonight, Intel warned, which signals the tech industry is suffering as well.

What also distinguishes the market now is the forced de-leveraging of the the hedge funds caused by redemptions. Current estimates place year end redemptions at approximately $400 billion before leverage. With leverage it represents another large sell-off in the making.

Then there's the negative wealth effect of both stock market and home value losses. YTD, these dwarf any Fed bailout programs.

Finally, unlike each of the previous crashes, not only is America's main street suffering, but so are all the other global economies.

All anyone can do is watch.