Welcome to Wall Street, Barack Obama. His victory signaled a change in US political direction, but the biggest election day rally ever – a surge of 4.1% in the S&P 500 Index on Tuesday – was quickly overshadowed by the grim realities of the worsening economic and earnings picture, resulting on Wednesday and Thursday in the S&P 500’s biggest two-day loss (-10.0%) since 1987.

The stock market is likely to see a lot of back-and-forth churning as it tries to map out a bottom. A 90% down-day is normally followed by a rally of two to seven days. In this instance we are dealing with two consecutive 90% down-days that occurred last week. For a year-end rally to materialize, it is essential that the recent lows (8,176 on the Dow Jones Industrial Index and 849 on the S&P 500 Index) not be taken out and that credit spreads continue to contract. But for confidence to return, sustained moves above 10,000 for the Dow and 1,000 for the S&P 500 are required.

Read all about this in my weekly review, highlighting some thought-provoking news items and quotes from market commentators during the past week.