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.

The S&P 500 has now closed below its 200-day moving average and its November low.

A new double-top reversal has triggered, threatening to deepen this pullback into a double-digit correction.

With the most extreme oversold conditions since last year’s correction, the focus shifts to watching for follow-through or a 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.

Whenever we see strength, it consistently gets sold.

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

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The Price Action

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 to last week’s intraday low at 6473, the S&P 500 has pulled back -7.5%.

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

With price below its November low and 200-day moving average, the focus this week is whether this new double-top reversal sees strong, sustained follow-through.

This larger reversal is targeting S&P 6060 which is -6.9% from last week’s close.

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