We certainly have a theme going in the market: the slowdown theme.

There are plenty of folks out there who think the economy is doing just fine but when you pin them down, there is quite a consensus view that Katrina will take approximately 1% off of GDP in the quarter.

Now, the bulls expect it will not upset the growth in the economy; they believe it will be a one-off event in the quarter and then we're back on track.

The bears have a different view in that they believe we are just going to fall off a cliff.

I thought of this as I looked at the chart of crude oil Thursday. You see, we are beginning to hear folks use the word stagflation when it comes to the economy. The gist I get from all this economic chatter is that they think prices, crude included, are moving higher while growth is slowing.

I am a mere chart reader, but when I look at the chart of crude oil I wonder why no one is discussing the head-and-shoulders top developing in this chart.

This won't be a completed pattern until the chart breaks that $62.50 level, but note that I have also drawn in an uptrend line. Most folks have that uptrend line drawn in and they can see clearly that a break of $62 will break the uptrend, but if we break $62 we will be breaking two important technical patterns with an uptrend line and a neckline at that level. A break is always more important when it breaks two things, not just one.

If we use the numbers of a high of 71 and a low of 63 (remember, these are not exact, they are meant to be general areas) we get 8. Then we can subtract 8 from 63 to get 55.

But this brings me back to the folks who are chattering about the market. Have you noticed you rarely hear anyone say something about the market rallying if crude falls? Remember when we used to hear that all the time? Now we don't. Now we hear that if crude falls it's because the economy is slowing!

And that is all part of the bearish sentiment that is building out there. As I showed in Thursday's column, the Investor's Intelligence percentage of bears is currently at 26.6% and I fully expect it will continue to move higher. A reading in the mid-30s is often seen at trading bottoms. We aren't there yet, but we are heading in that direction.

We are still not yet oversold but we have now had four days with the NYSE advance/decline line in negative territory. We rarely get more than five days without a bounce of some sort because no market goes down in a straight line. I expect we will see a market bounce either today or Monday.

However, we are not yet oversold on the oscillator and there is not quite yet enough bearishness out there, so I continue to expect if we get a bounce in here it will be short-lived because we will still have some more work to do on the downside.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.

Helene Meisler writes a technical analysis column on the U.S. equity markets and updates her charts daily. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.

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