US Major Indexes Consolidate Into Sideways/Flagging Pattern – Watch For Aggressive Trending Soon

Over the past few weeks, the US major indexes have consolidated into a sideways price channel. This is most obvious on the Nasdaq and SPY charts, as we’ve seen moderately deep pullbacks through the months of April/May 2021. My research suggests this sideways price flagging might be concerning for active traders/investors. 

When the market flags into a sideways price pattern and near an apex level, price tends to act in a very aggressive manner while attempting to establish a new trend. The longer the price continues to trade within that sideways/flagging price range, the more aggressive and violent the new trend may be when it finally breaks free of the sideways price channel.

After Many Weeks of Sideways Price Trending – What's Next?

The weekly SPY chart below highlights the seven weeks of moderate sideways price activity and shows the extended resistance level (magenta line) which represents an almost extreme rally trend originating from the 2009~2011 initial price bottom/rally after the housing/credit crisis. My research team and I are cautious of how the SPY has rallied recently, targeting the prior magenta line trend level before dramatically stalling after briefly touching this level.

Long-Term SPY Chart Highlights Incredible Price – “Fuzzy Double Top" from 2009 Bottom Levels

The following monthly SPY chart shows you the bigger picture. As the bottom set up in 2009-2010, price rallied sharply and set up an upward sloping price channel off these highs. Usually, as prices move away from the bottom, a sharp recovery may take place after the bottom completes. This initial upward price trend often represents some of the strongest upward price momentum one may see as the bullish trend continues to unfold.

It is very unusual for price to rally very strongly after a deep price bottom and then move into weaker bullish trending, even more so to then begin to accelerate into a very aggressive upward price trend targeting or reaching the initial bullish momentum after the initial deep bottom level. 

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