Bear Flag or Pause in the Trend?
Price Patterns
Today was a big reversal within the short-term upward trend for stocks. The next few days could be critical in determining the direction of the market for the remainder of the summer.
The Bull Case:
From the bullish perspective, the pattern of higher lows is still intact. This pattern will remain intact as long as the S&P 500 ($SPX), for example, stays above 1250. Resistance is clearly at the 1290 level in the SPX.
You can observe similar patterns of higher lows and horizontal resistance levels across other major market averages.
The Bear Case:
A strong case can be made that a bear flag (or bearish wedge) is forming in the SPX and that stocks are about to breakdown into their next leg lower within the bear market. The bear case will gain credence if the SPX breaks its pattern of higher lows by falling below 1250.
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