Midweek Flag Trendline SP500 Update

Jul 18, 2012: 11:37 AM CST

We’re hearing much talk about the potential Bear Flag pattern on the S&P 500 Daily Chart.

Let’s take a mid-week update on the pattern and note the current key price boundary levels to watch for clues.

First, here’s the S&P 500 Daily Chart trendline structure:

Moving from right to left, we see the current “Bear Flag” consolidation pattern stretching from early June to present.

The lower rising trendline resides near 1,340 while the upper rising trendline continues near 1,390.  The 30-min chart below emphasizes these trendline levels.

Now, moving to the left of the chart, the last time we saw a similar Daily Chart ‘flag’ struture was from August to October 2011.

While price did break the downside trendline, the full downside target was NOT achieved due to a power-rally which developed off the 1,100 Index level.

From there, price structure continued to trade mostly in a “Creeper” uptrend, bound by the prior “flag” trendlines until the breakdown of May 2012.

Here’s a current intraday perspective of the current Flag Trendline boundaries:

Again, this post focuses mainly on the trendline boundaries which extend from 1,340 to 1,390.

With the exception of a few minor Bear Traps (initial breaks that reversed back inside the structure), price has traded consistently between the dominant ‘flag’ trendlines.

The implication for the near future is that price will continue respecting (trading between) these boundaries, which suggests a continuation rally toward 1,380 or 1,390.

If so, we’ll all assess whether price continues its upward movement with a surprise breakout above 1,400 or else stalls and then trades lower toward the new lower trendline target.

That would be the “Trendline Continuation” thesis.

The alternate or Bearish thesis would be seeing something similar to what happened in September 2011, as seen in the chart below:

What I’ve tried to recreate in the chart above is the “step-inside” the Daily Chart flag pattern from August to October 2011.

We see a similar, better structured, parallel trendline channel from August until September 2011.

I pinpointed the potential “Fork in the Road” point where the market stands currently:

Either the market will continue trading within the trendline structure or else we’ll see a ‘failure’ and potential outcome similar to that of 2011.

In the case of 2011’s Bear Flag/Parallel Trendline Channel, price stalled under the upper boundary in mid-September, reversed, then broke convincingly under the rising lower trendline under 1,170.

After a throwback, price impulsed lower and reversed definitively off the 1,100 key support.

So, for short-term traders, be keenly aware of the two main potential outcomes from the dominant price pattern currently developing:

Either price continues to trade within the pattern toward 1,390 to 1,400 (bullish short-term), or else we see a stall/failure (bearish) which targets the lower rising line or even beneath it with a “history repeats” situation like that of 2011.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

12 Comments

12 Responses to “Midweek Flag Trendline SP500 Update”

  1. Jan Says:

    Hey Corey,
    what about the breakout out of the 3 month triangle today?
    Jan

  2. Joho23 Says:

    Anybody see this?

    http://onlypricesmatter.wordpr

  3. share tips Says:

     YES YOU ARE RIGHT ABOUT S&P http://www.moneymunch.com/

  4. Weekend Risk Reward Market Report | The Risk-Reward Market Report Says:

    […] bull market. Bear alert for the core strength. Balance of Power: NO clear cut trend. (per last weeks comments remain confined to a primary “neutral” or lateral trend, defined by approximately the […]

  5. Transhudson Says:

     how can anyone see it it's a co on, all protected?

  6. Risk-Reward Market Report | The Risk-Reward Market Report Says:

    […] bull market. Bear alert for the core strength. Balance of Power: NO clear cut trend. (per last weeks comments remain confined to a primary “neutral” or lateral trend, defined by approximately the […]

  7. SP500 Continues to Surf the Flag Trendlines | Afraid to Trade.com Blog Says:

    […] to the previous “July 18 SP500 Flag Update” to see the game-plan and how it developed over the last few days as price successfully […]

  8. SP500 Continues to Surf the Flag Trendlines | Investing Advisers Says:

    […] to the previous “July 18 SP500 Flag Update” to see the game-plan and how it developed over the last few days as price successfully retested […]

  9. Risk-Reward Market Report | The Risk-Reward Market Report Says:

    […] strength. Balance of Power: NO clear cut trend. Look for a buying opportunity in August. (per last weeks comments remain confined to a primary “neutral” or lateral trend, defined by approximately the […]

  10. | The Risk-Reward Market Report Says:

    […] strength. Balance of Power: NO clear cut trend. Look for a buying opportunity in August. (per last weeks comments remain confined to a primary “neutral” or lateral trend, defined by approximately the […]

  11. SP500 Continues to Surf the Flag Trendlines | www.traderstouch.com Says:

    […] to the previous “July 18 SP500 Flag Update” to see the game-plan and how it developed over the last few days as price successfully […]

  12. Baby care Says:

    Baby care…

    Midweek Flag Trendline SP500 Update | Afraid to Trade.com Blog…