Stocks’ losing streak has pushed S&P 500 exchange traded funds to their low for the year as they test the neckline of a bearish “head and shoulders” pattern.
“That top needs to break down pretty much immediately; otherwise it will likely fail to play out. With the index testing the neckline region, it’s on a precipice and how the index acts over the next several hours is critical,” said Tarquin Coe, a technical analyst at newsletter service Investors Intelligence.
“Blood is certainly on the streets and indicators are oversold so today may prove to be a buying opportunity,” he added.
With well-known patterns such as the bearish head and shoulders formation, there could be a bear trap in the making.
“Such a dummy move could see the S&P 500 fall down to 1233.19, a Fibonacci 38.2% retracement of the rally off the 2010 July low to the 2011 high, and then reverse,” Coe wrote Wednesday.