Could the Dow Go Down to 4,000?

Could the Dow Go Down to 4,000? Dow 4,000 would mean another 50% market correction. This may seem impossible to think the Dow could lose another half of its value. How could the market go down so much? How can the market cause investors so much pain? It even seems cruel to contemplate.

My friend and fellow Trader Clay suggested to me it could. At first I scoffed, and then I thought. To truly know the answer you would need to look into the capitalization structures of every component and analyze the Debt and Equity used to finance the company's operations. You need to look at the cost of the debt, how much equity they have, how much money they are currently earning or losing, ect. You would surely need to make many assumptions about future business, economic and stock market conditions. These assumptions can be many varying degrees of right, wrong, true and false. You would also need to account for how much each components market cap "weighs in" to the index as a whole to see if those prices could fall to those levels based on the "fundamental" analysis.

Fortune Magazine Interviewed Commodities Legend Jim Rogers and he said this:

"In my view, U.S. stocks are still not attractive. Historically, you buy stocks when they're yielding 6% and selling at eight times earnings. You sell them when they're at 22 times earnings and yielding 2%. Right now U.S. stocks are down a lot, but they're still very expensive by that historical valuation method. The U.S. market is yielding 3% today. For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes."

I debated looking at the fundamental financial data to extrapolate an elaborate valuation theory to justify a Print of Dow 4000, I then decided to leave that to someone else. After looking at the Charts of the Dow Stocks the market is already speaking loudly about how much value it believes each component of the index is worth. Closing a few points above or below the 8,000 mark Friday its investors are skating on thin ice

After some thinking I do believe the Dow Jones Industrial Average could go to 4,000.