Bear Flag Pattern Suggests S&P 1,000 Could Be on the Horizon
| By: John Darsie | (Posted: 9/09/2011 06:04:00 PM) |
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Talk of a possible Greek debt default grew louder as the day wore on Friday, with several Eurozone officials commenting that they expect a default over the weekend. Naturally, the markets didn't respond positively to the news. Combine that with the terror alerts in New York City and Washington, DC this weekend for the 10th anniversary of 9/11, and it was a recipe for heavy selling.
The Dow closed off more than 300 points to finish another wildly volatile week, and based on the action and news, we could be headed for another huge Monday morning gap down. However, it was difficult to chase shorts at the end of the day at such oversold levels, because if the Greek default doesn't come to fruition and there is no major terrorist attack, those short positions would likely be in serious pain.
The news of a possible Greek default, which would be a historic first-time event, overshadowed any individual stock stories today. In isolation, the default of a relatively small Eurozone economy would not be the "end of the world", but with other, larger Euro economies standing on extremely shaky ground (especially Italy), such an event could trigger a domino effect unlike anything ever witnessed in modern human history.
Conventional wisdom would tell you that gold shot through the roof on a day like this, but whispers about potential margin hikes pushed GLD to a lower open and seemed to keep the metal at bay. Even with the market tanking, GLD had a hard time ticking higher.
Technical Take
If you take a step back and look at the SPY chart on a daily and even weekly time frame, the obvious pattern that jumps out at you is a wide, but well-defined, bear flag. Previously, we noted the well-defined head and shoulders pattern that forecast the deep correction.
The only strategies that have worked, and provided limited risk, over the past month have been buying and selling extreme moves in both directions. Large gap downs on Monday and Tuesday had investors extremely bearish--the most bearish since September 2007--which gave way to a steep short squeeze. As we've seen before, that low-volume bounce/short squeeze was only "transitory", as Ben Bernanke would put it. The oversold bounce we saw early in the week actually turned out to be a negative event for the bulls, because it allowed the market to work off its severely oversold condition and prime for another plunge.
The Dow closed off more than 300 points to finish another wildly volatile week, and based on the action and news, we could be headed for another huge Monday morning gap down. However, it was difficult to chase shorts at the end of the day at such oversold levels, because if the Greek default doesn't come to fruition and there is no major terrorist attack, those short positions would likely be in serious pain.
The news of a possible Greek default, which would be a historic first-time event, overshadowed any individual stock stories today. In isolation, the default of a relatively small Eurozone economy would not be the "end of the world", but with other, larger Euro economies standing on extremely shaky ground (especially Italy), such an event could trigger a domino effect unlike anything ever witnessed in modern human history.
Conventional wisdom would tell you that gold shot through the roof on a day like this, but whispers about potential margin hikes pushed GLD to a lower open and seemed to keep the metal at bay. Even with the market tanking, GLD had a hard time ticking higher.
Technical Take
If you take a step back and look at the SPY chart on a daily and even weekly time frame, the obvious pattern that jumps out at you is a wide, but well-defined, bear flag. Previously, we noted the well-defined head and shoulders pattern that forecast the deep correction.
The only strategies that have worked, and provided limited risk, over the past month have been buying and selling extreme moves in both directions. Large gap downs on Monday and Tuesday had investors extremely bearish--the most bearish since September 2007--which gave way to a steep short squeeze. As we've seen before, that low-volume bounce/short squeeze was only "transitory", as Ben Bernanke would put it. The oversold bounce we saw early in the week actually turned out to be a negative event for the bulls, because it allowed the market to work off its severely oversold condition and prime for another plunge.
