I wrote these words back on June 24, 2011: "This is the first real technical warning sign that the market is on the verge of breaking down and the economy is on the verge of a recession." I was referring to a monthly chart of the i-Shares MSCI Emerging Market Index (symbol: EEM), which was displaying a pattern consistent with past market tops.

Now 3 months later, we once again turn to EEM and say, "be careful". See figure 1, a weekly chart of EEM. The black and red dots are key pivot points, which are the best areas of buying (support) and selling (resistance). EEM is threatening to close (on a weekly basis) below the most recent key pivot point or support area at 39.68. This would be bearish. In particular, this could be very bearish. With investor sentiment so extreme, we should have seen a bounce at these levels. Not only haven't we seen the bounce in EEM, but we are actually seeing prices (maybe) break through a support area. This has a high likelihood of leading to a waterfall decline (if there is a weekly close below 39.68).

Figure 1. EEM/ weekly

The market action is becoming increasingly narrow and as we discussed yesterday, it is concentrated in the "go to" issues of the NASDAQ100. Copper, EEM, China, and Europe are technically looking weak. However, any such proclamation that the world is ending is on hold until after the Fed meeting on Wednesday. Who knows...maybe they have a plan to bail out the world?