This is the third consecutive day that the blue-chip average has traded below 8,000. Previous drops below this level have been followed by large upward moves. Should a rebound fail to occur, the danger that the blue-chip average could drop to new lows significantly increases.

Trading ranges hold until they don't, and the risks of downside breakout are rising.

There is a rational reason for the current weakness. Fourth-quarter earnings have been lousy, the problems in the banking sector are not getting solved and visibility is lacking.

Furthermore, profit projections continue to be cut across the board. Out of the more than 200 industry groups that we track, just 11 industries have more positive earnings estimate revisions than negative revisions.

Earnings estimates for the S&P 500 (SPX) tell a similar story. In November, analysts projected that 2009 profits would total $93.73 per share. As of Wednesday, the average forecast was $62.73, a 33% drop. More telling, the current consensus earnings estimate is below the most pessimistic projection of just 2 months ago.

How low could the Dow go? It would not surprise me to see the average fall to 6,300 or lower. Such a move would bring P/E multiples near single-digits -- something that has not occurred since the mid-1980s.

If I'm wrong - and let's hope that I am - the Dow should rebound to the 9,000 level.