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FTSE 100 index (UKX)

Despite the gyrations last week the market ended the week a relatively paltry net 32.7 points lower having at one stage been 563 points off.

At the start of the month I pointed to the start of a bear phase and the FTSE 100 has achieved the triangle target, tested Fibonacci 38.2% retracement of the 2003 to 2007 bull market at 5,428 and moved near strong congestive support close to 5,320, which restrained the market for seven months in 2001 and 2002. While further falls would likely focus on 5,015 and even 4,600, it can be said we have now seen some proportionality in the downmove relative to the preceding bull run, in price terms, if not in time. Also, momentum has dropped to very oversold conditions, which necessitates a short-term upward correction at least.

Where to now? The gains of the latter half of last week caused a climb toward 6,040, the neckline level of the top pattern that has been the primary pattern generator of bearish portents. Moves above this level would indicate potential initially to 6,170, though the market could sell off to a close retest of recent lows as bullish resolve is tested.

Generally, markets tend to provide a second chance to get into a move – up or down. What happens as the lows are approached will be key to future longer-term direction.

Dow Jones In. index (INDU)

The bad news on 2008 prospects is out, markets have moved to discount adjusted projections, rumour suggests the unwinding of positions after the French bank trouble may have helped overdo matters, while the US seems ready to throw anything on the fire to keep up economic heat.

Does that make the markets a buy now? Probably not. With the FTSE 100, last week the Dow nearly tested 38.2% retracement of the four-year bull run at 11,524 (Tuesday’s intra-day low was 11,634.8) from where it has rallied a short 1,000 points. This looks like it could be a spike low with swift upmoves to recapture most losses seen since October. But first, the bull trend line that defined the 2003-2007 bull market must be regained by a rise through 12,620, and bear markets can see upside corrections that can look like a new bull trend is establishing itself. Currently, Elliott wave analysis points to a fourth wave upward correction that will stall between last Friday’s high of 12,487 and 13,020. Even if the storm is over, the index could retest resent low territory and so the resolve of the bulls. For my money, the top pattern that developed between April and the turn of the year still points to a target of 10,467 and the bears have not yet been routed.