Will Traders See a Bear Market Rally?

From a technical analysis standpoint it certainly looks as if we are going to see more of a bear market rally.

• The S&P 500 Index continues to show signs of life, as we have rallied on Monday.
• At this point, you could make an argument that we are forming some type of bullish flag, which obviously would attract a lot of attention.
• If we do break above the top of the candlestick, then the first major barrier would be the 4200 level.

Earnings Season Will Determine the Next Big Move

That being said, this is a very messy pole on the flag, so I’m not completely convinced. If we were to break above the 4200 level then you would have to think that we would go looking to the 4300 level. The 4300 level is an area that has seen a lot of selling pressure previously, and of course is a large, round, psychologically significant figure that people would be paying close attention to. Breaking above that opens up a huge move to the upside, but it’s very difficult to imagine that happens easily. Having said that, we are in the midst of earnings season, so that of course could have a major influence on where we go next.

Underneath, we have the 50-Day EMA getting ready to cross above the 200-Day EMA, kicking off the so-called “golden cross”. A lot of traders like that, and it does suggest that we could see a move to the upside. However, I don’t necessarily like that indicator myself, because it does tend to be very late at best. Nonetheless, it does give us yet another reason to think that perhaps we are going to go higher, so from a technical analysis standpoint it certainly looks as if we are going to see more of a bear market rally.

However, if we turn around a breakout below the lows last week, then it opens up a retest of those moving averages, which sit right around the 4000 handle. The 4000 handle is of course a large, round, psychologically significant figure, and a lot of people will be paying close attention to that as it is an aera that will attract a lot of headlights. Anything below that level then opens up a potential drop of at least 200 points. That would put the market near the 3800 level, which is a large, round, psychologically significant figure and a major swing low.

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