US Markets - Nasty Moments Ahead ?

After the market broke a key long term support (the 200 day moving average) in early August, it has been quite a wild and wooly ride.  Stock picking has once again been thrown out the window and everything has turned into a macro economic or government/central bank intervention news headline market.  In the bigger picture the broader market, and S&P 500 in specific, have become range bound in a 100ish point range, 1120(ish) to 1220(ish).  We've only been below that area once (on the Fed announcement day) and above it twice (last week).

Hence, all the analysis and discussion during the movements in this range really don't mean much other than those making 1-3 day trades, or for daytraders.  All of the key longer term moving average (50, 100, 200) are now trending down, and the index has not been able to yet jump back through even the weakest of these three resistance lines.  Until we see that, it remains a sell on rally market.

If you twisted this chart upside down, we'd be consolidating after a big move up (bullish), so you have to respect the setup until it changes as right now we are consolidating after a big move down (bearish).  At this point I'd like to see the S&P 500 over 1250 on a good bit of volume to return to anything other than neutral on the market.

Another view:-

About those Bear Flags….

A lot of chatter out there about the Bear Flags in the major indexes. I look at these sort of patterns as a consolidation within a violent move that tends to resolve itself in the direction of the underlying trend. In this case, the collapse in stock prices at the end of July and into August has been consolidating in a Bear Flag looking pattern.
John Murphy defines Flags as, “brief pauses in a dynamic market move. In fact, one of the requirements for both the flag and the pennant is that they be preceded by a sharp and almost straight line move. They represent situations where a steep advance or decline has gotten ahead of itself, and where the market pauses briefly to ‘catch its breath’ before running off again in the same direction.”
Here are the charts:







Some of these “Flags” are cleaner than others but the patterns seem to be pretty consistent across the board. Most technicians will look for declining volume as the consolidation progresses. And although not shown in the charts above, the volume has done just that. The confirmation here is the break below the lower trend lines. If these are in fact bear flags, you want to take the “flag pole” that got us to this point and expect that same move after the breakdown. In other words, take the depth of the declines from the July highs to the August lows and subtract that number from the breakdown level (if it breaks down) to get your targets.
It would take break outs above the recent highs to hold in order to invalidate these bearish patterns. Confirmation of these patterns comes on a breakdown below the lower trendlines. As John Murphy puts it, “Flags (and pennants) are among the most reliable of continuation patterns and only rarely produce a trend reversal”.