About That Island Top in S&Ps

I know everyone seems to be worried about the Dr. Seuss aficionados down in DC this week. But us market participants see something else that is a cause for concern. With Monday morning's gap lower in the S&P500, we have what technicians might call an "island top". This is a rare pattern that doesn't exactly have the most bullish implications.

This chart represents S&P500 futures, but you can see the same pattern in the S&P cash. On Monday September 16th, the index opened up with a gap higher leaving the bears in the dust. For 2 weeks, S&Ps traded within about a 40 point range that created the "island", before the gap lower this week:

I included the 50 day simple moving average in the chart to show the significance of where the gap opened. I would say that to invalidate the bearish implications of this island reversal, you want to see S&Ps filling that gap and holding above that (now declining) 50 day moving average.

This isn't good...

Tags: $SPX $ES_F