Price chart patterns suggest that the uptrend for stocks over the final days of April could prove to be a short-lived relief rally, according to Wolfe Research. Technical analyst Rob Ginsberg said in a note to clients late Tuesday that the recent bounces for the S & P 500 and the Nasdaq-100 look suspiciously like “bear flags,” an ominous chart pattern. “Equities ended the month on a sour note, as last week’s dead cat bounces stalled out beneath resistance. The near-term formations in the SPX and NDX are starting to resemble ‘Bear Flags’ and while they each closed right on near-term support, our sense is that it doesn’t put up much of a fight,” Ginsberg said. A “bear flag” is a technical pattern that sometimes develops during short-term bounces in a broader market decline. The idea is that the short-term rally creates a new trading channel that could give way to another sharp drop when the stock or index breaks through to the downside of the trading pattern. Last week, the S & P 500 rose 2.7%, its best weekly performance since November. Despite that, the index finished April with a loss of more than 4%, snapping a four-month advance. Ginsberg said in the note that he sees potential downside to the 4,800 level on the S & P 500, which would equal a further decline of about 4.5%. He also warned of similar downside potential for the Nasdaq-100 to around 16,500, which would equate to fall of more than 5% from where the index closed on Tuesday.
