August 26, 2011
Both the S&P 500 Index (SPX) and its tracking ETF the S&P Deposit Receipts (NYSE: SPY) are forming a potentially bearish pattern.
The SPY has made two lows, the first on August 9 at SPY 110 and the second higher lows on August 22 at SPY 112.
The SPY has made two rally highs, the first on August 17 at SPY 118 and the second lower high on August 26 at SPY 115.
Drawing a line through the two highs and two lows and extending the line to the right of the chart (daily chart) creates a pennant formation with a declining trend resistance line and a rising trend support line.
Historically, pennant formations tend to break in the direction of the previous trend and that trend was the steep selloff from July 21 to August 9.
This forecasts a bearish outlook for SPY as well as most stock indexes over coming weeks if we break lower as expected.
The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy has a position in the S&P 500 SPDRs.