Does Anyone Else See a Giant Bear Flag in the S&P 500? – Charles Hugh Smith (06/05/2018)

“Reality” is in the eye of the beholder, especially when it comes to technical analysis and economic tea leaves. It seems most stock market soothsayers are seeing a breakout of the downtrend that erupted in early February, and so the path to new all-time highs is clear.

Does anyone else see a giant bear flag pattern in the daily chart of the S&P 500? Maybe I’m the only one who sees a bearish signal instead of a bullish breakout.

What I see post-mini-crash is a bearish rising wedge which broke to the downside as rising wedges are wont to do.

What followed the rising wedge? A bear flag. As the name implies, Bear Flags are, well, bearish; they tend to break lower in a continuation of trend. The consensus of soothsayers seems to be that the trend is still bullish. I guess I’m the only one who sees lower highs since late January, something that doesn’t strike me as evidence of a bullish trend, the definition of which is higher highs.

Having treaded water for the better part of the month, the Bollinger bands are now tightening, a condition that typically presages a major move up or down.

If the consensus is correct and the technical snapshot is 100% bullish (breakout, up-trend, etc.) then the next big move will be to the upside. Plummeting volatility (VIX) suggests the majority of punters are in the 100% bullish-signals camp.

If the tin-foil hat outlier (me) who sees a big fat bear flag is correct, the next big move will “surprise to the downside.”

Meanwhile, a smaller camp of soothsayers expects a trendless chopfest, i.e. a continuation of May’s up and down action within a tight trading range.