As I indicated during a slot on CNBC Europe last Friday, the charts for the S&P 500 are not terribly instructive in attempting to pinpoint support levels now that we have broken on a weekly closing basis below the 740 area, so it might be more helpful to review other indices where there is clearer guidance.

The long-term monthly chart for the Russell 2000 (RUT) shows that there is evidence of support in the region of 330/340 on this index which held during the corrections of 1998 and also of 2002/3. This would suggest about another twelve percent or so of downside and by rather simple extrapolation one could then propose a rough target of approximately 650 on the S&P 500.



It was a bleak day of trading throughout Asia on Monday morning with the Nikkei 225 dropping back towards the levels just around 7000 which were probed at the end of October 2008. If we return to 7000 we will once again be at levels not seen for a quarter of a century, and depending on how trading goes in the US this afternoon, that test for the Tokyo index could come as soon as tomorrow's session.



There was a four percent decline in Hong Kong on Monday. The Hang Seng Index (HSI) clearly shows a pattern of two failed attempts during the last three months to sustain any kind of meaningful bear market rally.

There is almost ten percent further to fall if traders want to revisit the late October low.



HSBC announced a £12bn ($17bn) rights issue before the London markets opened this morning which is remarkable in several respects. The bank, which is truly global, has been one of the better performers over the last two years, but it has recognized the need to raise additional capital despite an extremely difficult environment.

Also the fact that they believe that they can raise capital from the private sector when most of the other UK banks are in the emergency/intensive care unit of the Government's new NHS for bankers, also shows a strong conviction that they wish to remain outside the web of government funding and oversight.

What is becoming clearer is the development of a two-tier banking system which will change the financial landscape. A small group of banks will be completely independent of public sector support but an increasing number are, for all intents and purposes, nationalized.

The European markets are acting out their own version of the slow motion crash in Monday morning's session with the DAX, CAC40 and the FTSE all down approximately 3%.

The FTSE is actually extending its losses as this is being written and is now down by four percent from Friday's close.

There are two key values to be monitored today - one is the intraday low printed on the index of 3665 from October 31, 2008 which is literally just a whisker from current levels. If that breaks, the March 2003 lows of 3255 would become the next feasible target for testing.




Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com. There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarantee of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.