Stocks weakened overnight after a report said Europe's services and manufacturing industries weakened for a second month, igniting concern the region's economic recovery might lose steam.

U.S. equities haven't been the same since the Federal Reserve warned on Tuesday of a weakening economy in its monetary policy statement while hinting that additional quantitative easing may be necessary to stop the U.S. economy from derailing.

The Fed's assessment of the economy may have put a little fear in the minds of traders, who failed to hold on to gains following the Federal Open Market Committee, triggering a technical closing price reversal top in the December E-mini S&P 500 at 1144.00.

On Wednesday, traders confirmed the reversal top, setting up the potential start of a major decline of at least 50% of the recent rally. Based on the main range of 1032.50 to 1044.00, bearish traders may generate enough downside momentum to take this market back to at least 1088.25.

A few days ago I warned that the weakness in the E-mini S&P may take time to develop and that while the bearish pattern developed, the break would be labored. This was because the market had to work its way through a Fibonacci level at 1128.00 and a pair of old tops at 1124.50 and 1122.00.

Once these price levels are cleared, there will be room to the downside with an uptrending Gann angle on the daily chart at 1112.50 the most likely target. After this price a 50% price level at 1103.50 could provide limited support depending on the momentum at the time it is tested. A failure to hold this level sets up an even further decline to 1088.25.

Traders should note that the week's low at 1117.00 is still intact. This price level has no major significance other than it provided the support to launch the rally to the week's high at 1144.00. Another price to watch for intraday technical bounces is last week's close at 1119.75. A close under this price on Friday will form a weekly closing price reversal top which will be a strong indication of lower prices to follow.

The current weak action in November Crude Oil clearly proves that it has detached itself from the Euro and is now realigning with the U.S. economy. This could prove to be a bearish combination should the U.S. economy continue to weaken as forecast by the Federal Reserve.

Technically, crude oil is trading in the middle of the last main range of 71.49 to 78.86. This retracement zone is 75.18 to 74.31. A breakout in either direction over these retracement levels is likely to trigger an acceleration in that direction.

Also hemming in this market is a pair of Gann angles. Currently, crude oil is walking down a Gann angle at 75.36. This angle has been serving as resistance. Additional resistance is coming from another downtrending Gann angle at 75.16. The support angle is at 73.99 today.

Last week the main trend turned down on the daily chart when the market broke a swing bottom at 75.24. The lack of follow-through to the downside, however, signaled that this market was not ready to break. Traders instead chose to sell rallies.

A shift out of risky assets could be the catalyst behind a sell-off this week. If the stock market begins to make a sharp turn South, then look for it to take crude oil with it.

Overnight U.S. equity markets are trading lower, helping to push November Crude Oil to the bottom of its range. Currently this market is testing its lowest boundary at 73.99. With the market trading on the bearish side of the retracement zone, a sustained break under 73.99 could lead to an acceleration to the downside.

Risk aversion appears to be the theme developing today based on the strength in the U.S. Dollar and Treasury Bonds and the weakness in the equity markets. The bad manufacturing news from Europe has forced traders to face reality after several days of euphoria over better than expected European bond auctions and the Fed's weak assessment of the U.S. economy. Fear of a halt in the global recovery could spread pretty quickly throughout the markets if European economic data begins to show signs of a slowdown.

A poor showing in the equity markets today and Friday could be setting up an even harder break next week.