Opinions on the equity markets at present diverge wildly. Some people say the recovery is back on track after a possible further 5% drop and others say this is the beginning of a massive decline.

What seems likely is a short rally then a further drop. The levels to watch for are 11,000 or less in the Dow Jones and 1190 or less in the S&P. If prices don’t make it past those levels and then cross below 10,300 and 1100, last Friday’s lows, another decline is underway.

The ending levels of another decline could be below 9870 and 1066, the lows of last Thursday.

In terms of the dollar and Euro, there may be another move up to above 86 on the dollar index and to 1.25 or less for EUR/USD. The Euro’s low in Oct 08 was 1.23.

One commentator has pointed out that Oct 13 08, the day after a major crash and when bailout funds were forced on major banks, is very similar to last yesterday, May 10 10, in one very important respect: NYSE market breadth in terms Advance/Decline numbers spiked to record highs, meaning there was a huge rebound. But that lasted all of 2 days last time, and ultimately led to the Mar 09 low. This time, it’s Euroland getting a trillion-dollar bailout and will things be different?

The dynamics seem similar to Oct 08. Governments moved too slowly and then threw enormous bailouts at the problem just as the markets were coming undone. That didn’t prevent further declines. Now we’ve had a recovery that achieved the 61.8% retracement of the decline (11,246 on the Dow), which is a natural level to achieve, and the same bad movie is playing out.

You need to form your own opinion but personally, I’m looking for a top in the next few days. Currencies are already pretty tired today, so it’s possible we won’t even get above yesterday’s highs. But if we do, there is plenty of resistance overhead.