'Bear Flags' Take Shape in Indices

Since the last update indices got their bounce but the last couple of days have seen these gains gradually erased. Over the course of the week, the entire bounce has the look 'bear flags' as part of larger measured moves lower.  Should this emerge then indices will be close to offering the long term 'buy' signals I track in the tables below every blog post I make (available on markets.fallondpicks.com for syndicated content). Last of which for all three indices was February 2016

For the S&P, the measured move target is 2,585. This comes on a day of higher volume distribution with an acceleration of On-Balance-Volume lower and other technicals net bearish. However, relative performance is accelerating higher (vs Small Caps) and the index is clinging on to its 200-day MA

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Friday's Bounces Ease Back a Little

There was no real surprise to see the gains from Friday come back a little as Thursday's lows play a siren song. The most likely outcome is a consolidation pennant as prices focus off last week's lows - this might take a week to play out but the surge in volatility may see some pushback to stabilize price action.

The S&P finished just below 200-day MA as it inches back to 2,710 lows. I would be looking for more small losses or a neutral doji. The best of the action is the strong relative performance (against Small Caps) which runs contrary to price action itself.

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Indices Defend 200-day MAs

Last week's selling had put pressure on markets not seen since 2016 but the run of good form has meant Tech and Large Cap Indices are only now testing 200-day MAs. There was a brief overshoot on Thursday but the week closed more settled.

The S&P did well to make it back to its 200-day MA but it complicates the risk:reward which now has a loss of 2,710 as the place for a stop which is well outside most comfort zones. Given that, I would look for some retest of 2,710.

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Buy Signals Blown Away

The support levels which were on offer for the Russell 2000, Dow Jones Industrial Average and S&P were undone by the biggest 1-day loss in the year. Not surprisingly, volume rose in distribution as traders bailed.  The only index to finish on support was the Nasdaq 100. Although with a 4%+ loss it would be a brave trader to be buying the 200-day MA.

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