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Cult of the Bear III: Getting to Dow 6800

In Japan, an investigation into Livedoor -- hardly a premier Internet company -- was a convenient excuse to whack the Nikkei 225 stock index down 462.08.

If breaking 10,000 will make traders nervous, below 9000 the fear levels will be palpable. At that point, any one of our laundry list of negative catalysts might come into play. In my war-gamed scenarios , the dollar doesn't have to go into crisis, and the avian pandemic need not kill millions; instead, the investing public need only become alarmed that something nasty might occur to take fear levels up toward panic.

The move from Dow 8800 to 6800 won't be a rational, calmly contemplated affair. No one will be quietly wondering about option-expensing or multiple compression. Instead, it will be a severe overreaction to some external event.

If and when that happens, it likely will be the best buying opportunity in the markets since the October 2002 cyclical lows.

Barry Ritholtz is the chief market strategist for Ritholtz Research, an independent institutional research firm, specializing in the analysis of macroeconomic trends and the capital markets. The firm's variant perspectives are applied to the fixed income, equity and commodity markets, both domestically and internationally. Other areas of research coverage also include consumer, real estate, geopolitics, technology and digital media. Ritholtz is also president of Ritholtz Capital Partners (RCP), a New York based hedge fund. RCP is driven by the analysis performed by Ritholtz Research. Ritholtz appreciates your feedback; click here to send him an email.

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