SPY Bear Flag

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Over the last 10 days the market and SPY in particular have rallied off the lows of 135.76.  Since then SPY has moved upwards establishing two new trendlines.  The first is the extension of the long-term trend from December the second is a short-term trendline from 4/10.    SPY upwards movement has also been capped by a uptrending channel.  All-in-all this has created a bear flag bearish pattern.

Bearish Flag:  Is a bearish continuation pattern that is formed after a down movement.  Its is characterized by a sweeping down movement followed by an upwards consolidation.

  • Measured Move:  The "Flag Pole" for SPY bear flag is about 6, from 141.82 to 135.76.  This means the estimated downwards movement of SPY would be 6 points from its break.
  • Price Target: Depending on where SPY breaks a price target of this move would be 132.66

In order for this pattern to work though, SPY first must break 137.05 and the 50 day ema.  These two levels have held up the market so far.  The move does not happen if these levels don't break.   This pattern would be voided if it broke above 140.00

Other Levels to Watch:  Besides the bear flag other key levels are:

  • 137.05 Support:  This level has held the market over this entire week.  Key support, break of this is bearish.
  •  137.21:  The 50 day ema along with the 137.05 level it has held as support and acted as a bouncing point for the market
  • 139.09 Resistance:  This has  level has capped any movement upwards and is the lows from the top formation in March.  Break above this is bullish for the market and would start to void the bear flag.

 Overall: While the market has rallied slighty off its lows, the rally has not been strong and internals are still weak.  With the formation of the bear flag it is very possible this is just a consolidation before another leg day.  Unless the bulls can get above 139.09, this is how the lastest rally has to be looked at.

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