The document discusses technical analysis of stock market charts. It provides an alternate analysis showing a potential breakdown of the stock market to new lows. It also outlines an uncommon pattern on daily charts that could signal a large decline to 600 if completed. Finally, it emphasizes 850 as an important support level that needs to hold to maintain an upward market bias.

1. 12/23/200810:14 PM Pacific
This chart shows an alternate count of the zigzag coming down from A that undercuts
yesterday’s low by 4 points on the e-minis to 848(verses the zigzag ended yesterday).The
confluences are .810 retracement of X-A; 1.618 extension of b-1; intersection of
descending trend line, and 850 is a round number with a lot of natural support that
extends back to October. My preference is that yesterday’s low holds (especially in cash)
but I offer this level in the e-minis as the alternate level that needs to be broken in order
for a real breakdown to occur. The next level of support on a breakdown is still 830.
I have offered several times that part of the reason for my upward bias is that I could not
interpret any reasonable pattern that projected more downside without going higher first.
I now have one. The pattern below on the S&P daily chart provides a working thesis if
price turns down now, and it will work even better if price gets back to 920 then turns
down hard. I am not adopting this thesis yet, but I am placing it on the backburner in the
event price turns south between here and 920.

2. 12/23/200810:14 PM Pacific
This is an uncommon pattern, yet I have seen it several times on intra-day charts. It is an
expanding diagonal; an expanding variation of the ending diagonal. The implications of
completing this pattern are mind numbing. Even if price takes the most direct route it
will get to 600 before it touches the bottom channel. I hope this pattern stays on the back
burner.
The Fibonacci levels shown on this daily chart are retracement levels of the entire move
down from October 2007 to the low in November. If we are in a fourth wave double
zigzag or some other zigzag combination pattern as I have suggested recently, then price
should get to the .250 retracement level at a minimum, and it is far more common for
price to retrace to .382 in a 4th wave.
The other thing you can see clearly from this chart is the natural support and importance
of the 850 level. I would go so far as to say this that this is the most important level for
the market on a closing basis in order to maintain an upward bias. Breaking this level
would also mean that price would fall back into the down sloping regression trend
channel that I wrote about last night.
TMD/DW
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3. 12/23/200810:14 PM Pacific
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