Significant trading channel

By Lawrence G. McMillan

MORRISTOWN, N.J. (MarketWatch) — The broad stock market, as measured by the Standard & Poor’s 500 Index is trading within a large, volatile range that should have significance when a breakout finally occurs. There is a generally bullish bias to the technical indicators right now, but that certainly doesn’t mean that a clear path has been laid out for a new bull market. We have not changed our outlook that another severe decline could easily loom on the horizon.

The chart of the S&P 500 SPX   displays a technical formation known as a “flag” or “pennant,” depending on how you look at it. Others might merely call it a “channel.” This formation — which it should importantly be pointed out, is not complete — is quite bearish if completed. Typically, after a stock or an index declines sharply for a rather lengthy distance, a rally ensues. That is the stage the market is in now, after the 250-point decline in SPX in August...

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