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

The past four weeks the index has been struggling upward as each instance it breaks to a new high it immediately falls back below that high. But within that pattern of trend each move down was becoming smaller and smaller indicating buyers were willing to come in at very high levels. Now there is a two day move down that exceeded the two previous moves or counter trends down in price. If this is a top then we will see a rally of 1 to 4 more days that will either fail to reach the high or get just marginally above that high and then trend down with support at the 800 level.

If this is a new leg in a bull campaign the index will drive above the last high and counter trend down and show support on top of that resistance and take off to the 950 level.

NOW LET'S LOOK AT THE FTSE 100

This is the weakest of the markets I follow especially relative to the DAX and CAC 40. You can see this is a weak trend and the last move down was 4 trading days and now it is up 9 days and still way below the high. A new high would be three thrusts and a likely top but trading this many days below the last swing high is a market struggling. So if the world indexes start to trend down this is the weakest and will show the strongest move down.

But notice one important aspect of this chart which can be seen in many other charts. Except for the false break in March the index has been moving sideways for over 6 months and that could be establishing a base. I don't have any evidence to indicate that probability but the charts say that is now possible. But this index is so weak it wouldn't be the choice for the long side and could still be in a severe downtrend.

LET'S LOOK AT THE 1938 DOW JONES

Other than the 1930's decline there have only been three other instances where the index declined 50% or more. The 2000/2002 decline, the 1973/1974 bear trend and the 1937/1938 decline. Last month we looked at the 1974 base and this chart is 1938 low and base. All of the instances where the index fell 50% the index didn't change the trend to up until a significant base was formed. This (1938) market had an October capitulation and a November break of that low and a new low in March exactly as our current circumstance. You can see after the March false break low the index showed two higher lows and once that base was complete the index took off running like it stole something. We are looking for a higher low to develop to confirm the possibility of a base forming. And for now we are looking of evidence of trending down with a weak move up next few days it help set that up.