IT HAS taken only one week for the benchmark Straits Times Index to slip 100 points from the 1,700 support to the next support level at 1,600.

While blue-chips are not experiencing the same type of ferocious selling pressure which was encountered on October 24 last year (when the STI last fell below the 1,600 support), it is the lack of buying interest which poses a more serious problem for the stock market. 

It is unlikely that STI can hold at the 1,600 support. 

The financial crisis is fast transforming into an industrial crisis which causes factory production to plummet and exports to collapse. This means that besides the banks, other sectors of the economy are also feeling the full fury of the credit crunch. 

As a leading indicator of how bad conditions have become, Singapore Airlines is moth-balling 17 planes. It did not even do that at the heights of the Sars crisis six years ago when people were scared to fly for fear of catching the deadlly virus. 

And while local banks are in much better shape than their global rivals, it comes as no consolation to find global lenders such as Citigroup now valued just marginally more than DBS Group Holdings. 

Investors are betting that  beleaguered US banks such as Citigroup would be taken over by the US government and the collapse in their share prices reflect this fear.  

But such a move will have far-reaching implications beyond US shores. As a government-owned bank, Citigroup may have to scale back its vast global operations, and this is likely to worsen the credit crunch already being felt by companies. 

This is likely to be bad news for local lenders. Even if they step into the breach by lending more to cash-strapped firms, the spate of bankruptcies is likely to go up, as the credit supply dries up. 

It is not surprising that they are preparing for such an eventuality. OCBC's results, for instance, show a sharp rise in provisions for bad debts, even though its chief executive David Conner was still bravely talking about loan growth and grabbing market share as foreign lenders scale back their lending activities. 

Some market experts are now looking to the STI to test the 1,288 support  which was the lowest point which the index reached during the Sars crisis six years ago. 

If the STI does weaken to such a level, it means that blue-chips will have another 20 per cent downside. 

It gives fresh meaning to the term 'caveat emptor' so frequently cited by the Singapore Exchange in much happier times. Buyers beware.