- Technical Market Commentary -

September 10, 2010 (FinancialWire) (By Frank Kollar) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries.) — Both the S&P 500 Index (SPX) and it’s tracking ETF the S&P Deposit Receipts (AMEX: SPY) have moved higher over the past two weeks, but there is strong resistance ahead and the markets are very overbought.

Since June there have been three attempts by the SPX and SPY to break out of the correction declines and start an advance. The first two failed at the SPX 1120 and SPY 112 levels. On Thursday September 9, SPX rallied to 1110.27 and SPY rallied to 111.68 before reversing. Both closed higher, but with reduced gains for the day.

The SPX 1110-1120 level and SPX 112-113 level are again just above and must be decisively surpassed in order to sustain a new advance. It remains to be seen if that can happen.

A wedge or pennant pattern is developing on the daily charts. That pattern is created by drawing a line through the closing highs of the August and current rally, then extending the line to the right of the chart. Do the same for the closing lows of the early July and late August declines, as well. Those four lines create the pennant pattern, and, typically, when such patterns are broken, they determine the direction for weeks to months to come.

Pennant patterns usually break in the direction of the prior major move, which in this case was the May-June decline. So the odds favor a break to the downside, with lower lows ahead.

The stock market can fool anyone at any time, but the patterns we see do look ominous.

(Go to http://www.financialwire.net/2010/04/22/about-kollar/ for more about Mr. Kollar, and go to http://www.financialwire.net/?s=kllrfby+cmmtry for more of Kollar’s commentaries.)

Disclosure: Frank Kollar’s Fibtimer.com Stock Timing Strategy holds a position in S&P Deposit Receipts (“SPDRS”) ETF.

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