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CNBC Europe Squawk Box

LET'S LOOK AT THE S&P 500 INDEX DAILY CHART

This is a picture of the sideways move since the November low. The last time I was on Squawk box was the 13th and I said the index was going to "resume the downtrend the next week" and that did occur. It is now testing the November low and the next week will determine what occurred the next few months. The November low is an "OBVIOUS" low and creates a circumstance that can produce a low or more likely it can set up a fast move down. If this trend is going to continue down the rally up from the "obvious" will not exceed four days or what I refer to as a first degree counter trend.

Since the January high there has been a fast move down with only one day counter trends indicating selling pressure. There was a bear market consolidation, a lower double top, followed by another fast move down. There is nothing bullish in that picture.

As a bear market matures the drives down tend to get faster and the last drive can be the fastest although it doesn't need to be the longest. In this index the last drive down tends to be 45 to 54 calendar days and the index is now down 51 calendar days. But this does not look like the exhaustion move necessary to put in a solid low. The next time window is around 60 to 65 then out to 90 to 99, there are no 68 to 89 calendar day drives into lows. My forecast has called for a low in March and that seems to be the case.

LET'S LOOK AT THE WEEKLY CHART

This chart has the range divided into 1/8 and 1/3 and is the best method for finding support and resistance. When the November low was hit I said the rally would not exceed ¼ of the range down or a ¼ retracement since that is what occurs in all bear trends of this magnitude. That is what occurred. The next low if the index breaks the November low should be very close to a 1/8 extension of this range. Why, because that is what occurs in almost all similar circumstances. There could just be a marginal break of the November low at 734 to 712 but a run to just marginally below this 1/8 extension of the range to 636 seems more likely. Because the index is trending down from three descending trendlines the probability exists for this run down to be of an exhaustion or capitulation style and quite scary. But it also indicates this could be the last leg down to this trend. If the index does capitulate down it will recover the November low quickly no matter where the low.

 

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