S&P 500 Remains with a Flag that Refuses to Fly


The S&P 500 got a two day bounce last week and a nice surge on Thursday, but fell back Friday as it met resistance at 1650, which is now the short-term level to beat. Overall, notice that the index formed a falling flag type correction the last four weeks. After a sharp advance from mid April to mid May, the index was overbought and ripe for a rest. The falling flag provided this rest and alleviated oversold conditions with a modest pullback. Notice how broken resistance in the 1600 area turned into support.

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The flag is still falling and has yet to be confirmed as a bullish continuation pattern. A falling flag also took shape in September-October 2012. Instead of breaking out for a continuation higher, the index broke the lower trend line and plunged in November. This decline retraced 61.80% of the prior advance before finding support and reversing. The bears have a short-term edge as long as this flag falls, which means further weakness is possible. The March-April lows and 38.2% retracement mark next support in the 1540-1550 area. An upside breakout at 1650 would take this downside target off the radar and project a move to new highs.

Good golf and good trading!
--Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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