Today’s reversal was significant, it shows strong selling into an area once thought to be a great buying opportunity. This shows that there is fear in the market at these levels. Looking at this through a technical lens there are two things patterns that are forming both of which are bearish. Last time we looked at the chart, we recognized a short-term down trend with the potential for a bullish breakout. That didn’t happen the channel took over the SPY broke down. Time to look at what is going on now with the market.
First day to day the big key levels to watch at 144.55 which was the support level that was mentioned earlier to watch, this area is now resistance, above at is 146.24. Crucial support is at 143.46 this level held the first dip and was a previous support level from early September – there is air below there.
Bear Flag Pattern: The first of the bearish patterns that are forming at the bear flag that has taken an early form. The channel upwards could move this market higher but if the short-term uptrend breaks its much lower for the market. This pattern is voided if it breaks above 146.24, more importantly it is confirmed if SPY breaks below 144.00. This represents a 3.5% move on SPY which would put it back around 140 to the high 139′s.
Head and Shoulder Pattern: It is a sloppy pattern(check the chart below) but the the two shoulders have formed with the left being the chop from Early Sept and the head forming at the high after the QE always announcement The right shoulder has been forming over the last couple of days. The more important neck line is at the 143.46 level. A break below this level and the pattern is confirmed.
Where would these patterns take us: Each pattern has a 3%-4% move on it pushing SPY right down to the 140 level and the uptrend for the summer. This would make logical sense as a stopping point.