Has Another Bear Trap Been Set?

Extreme Oversold Conditions Below Major Support Shows Sellers Were In Control

The Bottom Line

Price action remains weak, signaling a market under distribution.

The bull trap reversal put into motion this month has now captured its target, and the S&P 500 closed below its 200-day moving average and November low.

A new double-top reversal triggered last Friday, threatening to deepen this pullback into a double-digit correction. With the most extreme oversold conditions since last year’s correction, the focus now shifts to either follow-through or a potential bear trap.

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How the Week Played Out

Amid rising concerns over higher energy prices and inflation, stocks remained under pressure last week.

• Nasdaq: -2.1%
• Dow: -2.1%
• S&P 500: -1.9%
• Russell 2000: -1.7%
• Midcaps: -1.3%

Once again, stocks attempted to rally early in the week, only to fail.

Gap higher opens on Monday and Tuesday were followed by weakness, with gap lower opens dominating the rest of the week.

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The Price Action

• S&P 500 breaks below longer-term support
• Bull trap reversal captures its target and triggers a new double-top reversal
• This week’s priority is whether this reversal sees follow-through or triggers a bear trap

The S&P 500 has now pulled back for a fourth-straight week and six of the last seven.

Since the January 28th intraday high at 7002, the S&P 500 has pulled back -7.6%.

The bull trap head-and-shoulders reversal we’ve been tracking this month has successfully captured its target at S&P 6548.

The S&P 500 is now extremely oversold and sitting just below major support.

With price now below its November low and 200-day moving average, the focus this week is whether this larger double-top reversal targeting S&P 6060 sees strong, sustained follow-through.

With extreme oversold conditions and a multi-month consolidation, probabilities favor…