Chartists study past price movements in the hope of spotting patterns which might help to predict the future. Taking the chart of the FT-SE 100 index of leading shares they regard the 2,400 line as crucial.
In 1989 and 1990 the line provided the market's ceiling but gave it its floor in 1991 and the first half of 1992. The worrying feature is that the index has recently gone back through that floor.
What is more disturbing for the chartists is that the short-term moving average has cut down across the long-term moving average. This is a 'dead cross' in the industry parlance, a feature regarded by chartists as a certain pointer of worse to come.
Some chartists predict the market will fall to 2,200 or even 2,000 before it finds another floor. Richard Griffiths of James Capel, the stockbroker, rated this a possibility. He said a rally peaking below 2,400 followed by a fresh fall would make it a certainty.
But not all chartists are agreed. Richard Lake of SG Warburg Securities, who is rated the top chartist in the Extel survey of analysts, is less gloomy, pointing out that not all market rallies start from support levels or floors. 'Charts work better for individual stocks than for the market as a whole,' he said.
Few if any large investors rely solely on charts. Most use them as one of several factors in their decision-making, alongside the outlook for the economy, for company earnings and dividends. One fund manger said yesterday: 'We are fundamental investors, not chartists. But I admit we have been looking at the charts in recent days.'
Using the more traditional yardsticks the stock market does not look as weak. According to County NatWest, corporate earnings fell by 5 per cent in July, against 8 per cent in June.
Large investors also look at quantitative techniques, which also rely on past performance rather than prospects, but use numbers rather than graphics.