CNBC EUROPE

We're going to look at a theory today that says there is nothing new in the markets. Everything that occurs is just a repeat of the past. And we're also going to look at three different styles of trends or what I refer to as "Patterns of trend" of which there are only three in all markets.

I have been forecasting this current "pattern of trend" would follow the 1946 model.

LET'S PUT THE DJIA CHART OF 1946 ON THE SCREEN

Notice how the index bottomed in 1942. That was a 20 year cycle and you can see the validity of that cycle by checking 1922, 1942, 1962, 1982 and 2002 you can also look further back in time and find this valid.

Notice how the index came off the low with a fast trend, notice the vertical nature of the trendline. This was followed by a weak correction down. Then a weak trend up that eventually resolved itself into an exhausted style of trend. Once exhausted it showed a fast correction down where I have drawn an arrow. This is the point within that "pattern of trending" our current market is positioned or has the potential to be positioned.

LET'S LOOK AT THE CURRENT DJIA

You can easily see the same "pattern of trending" with the fast move up out of the 2002 low followed by a weak move down and a weak trend up that eventually resolved into an exhaustion style of trend that just exhausted or complete and was followed by this sharp move down just as in 1946. The obvious conclusion is the index will go to a minimum marginal new high when this correction is complete.

NOW LET'S LOOK AT THE S&P 500 CURRENT DAILY CHART

Last week I indicated there could be a low on Tuesday. This set up well with a three thrust pattern and the index is now up 4 days, the normal time period for a counter trend in a fast move. The retracement is also 3/8 of the range down and is also the normal resistance for a counter trend in a fast trend. But is seems as though everyone is looking for a new low to buy and that is the big question, will there be a higher low or a new low before it runs back to test the high? I believe a higher low or successful test is a good probability. The decline has been 87 points and worst case scenario is 104 to 110 points down from the high. If a new low does occur there would be a more complex counter trend form than four days up and a new low in four days or less. A counter trend at this stage would take 7 to 12 day and consist of a down day or two and a rally to test last weeks high that fails. A higher low is probable now. There is a quadruple expiration this week so expect a lot of intra-day volatility.

THE FTSE showed 4 very large range days up and will likely spend this week consolidating that big move up and could close out this week around this price level.