An important market indicator breached important support levels on Tuesday suggesting stocks might be about to plunge to new lows.

With the financial sector literally collapsing over the last several trading sessions it seems quite plausible that we will retest those lows, unless the government announces a quick remedy to alleviate the ongoing panic. U.S. financial sector stocks have already tanked 43% this month with the largest banks basically insolvent and awaiting some sort of government rescue or nationalization.

In London, bank stocks are plunging daily with the largest British banks' market capitalization now exceeded by bad loans, effectively rendering the sector bankrupt. It's the same story across other European capitals, including the epicenter of this crisis, United States. Emerging markets are also taking major hits with Russia and China and other countries all pounded heavily again this month. 

U.S. stocks are likely to retest the November 20 lows after the Dow Jones Transportation Average breached important support levels in yesterday's market plunge. If the Dow Jones Industrial Average confirms the price action of the Transports then we've got some serious trouble ahead for stocks.

From its all-time highs in October 2007 the Dow has now dropped a cumulative 44%. Before bottoming in mid-1932, the Dow crashed 86% from its peak in 1929. If this financial crisis is remotely similar, if not worse then the 1929 debacle, then stocks have further to fall.

Dow Theory requires both indexes to break down in order to confirm the primary bear market trend. But if the Industrials can hold at these levels then stocks might be poised to rise. For the market to confirm a breakdown we must see the Industrials violate the November 20 lows.

The 2002 bear market low for the Dow Jones Industrials was 7,286.27. At current levels, the Dow is just 8% away from taking out its October 2002 low. If it does, the odds are quite good that the Dow will collapse below 7,000 and from there might even take-out 6,000. Needless to say, the Dow below 7,000 is literally no-man's land for the market.

The Dow hit 7,552,29 on November 21 before rebounding strongly that day. On November 20, stocks crashed to 12-year lows. From their lowest levels in late November stocks are still up 8.3%.

It seems possible that the Elastic Rubber-Band Theory will apply to this grueling bear market.

The Rubber-Band Theory applies to a heavily overextended bull market, marked by irrational exuberance on the way up and equally, total pessimism on the way down.

Bear markets, like bull markets, will extend themselves beyond most investors' imagination. This one is no different.

I've got a feeling this bear market has yet to bottom and will violate the October 2002 low shortly. Brace yourselves.