Friday’s global stock sell-off on European debt jitters inflicted technical damage on closely watched exchange traded funds indexed to the S&P 500, analysts said.
After the violent summer drop in equities, stock ETFs had consolidated in a rising channel that some analysts marked as a potentially bearish “flag” pattern. [S&P 500 ETFs Find Support]
“The S&P 500’s attempt to test the upper boundary of its four week consolidation ran out of steam yesterday,” said Tarquin Coe at Investors Intelligence on Friday.
“That was despite a speech from Federal Reserve Chairman Ben Bernanke who normally has a positive influence on markets and also the anticipation of a new economic stimulus plan,” he wrote in a subscription newsletter. “If those factors can’t prop up markets then it’s a wonder what will. The market is sick and we continue to stress caution.”
Website optionMONSTER earlier this week noted the bearish flag pattern in the S&P 500. “The pattern would become active if price breaks below the formation’s low at 1140” on the S&P 500. “If the pattern were to become active, there would be downside potential to the 985 area.”
Coe, the technical analyst, remarked that consolidations such as the recent pattern are “cruel as they provide a false sense of security in that they give the impression that a floor has been established.”