Wave That Flag

After a wonderful holiday weekend, we are watching to see if SPY can break above the flag formation that has contained its price action since the beginning of May. If futures are any indication (up ~1% as I write), it will break above it Tuesday.

As I remarked a couple of weeks ago, action during this correction/consolidation has been very orderly. It has been a swing-trader’s dream. Note the blue arrows showing the RSI2 peaks and valleys and how they have corresponded perfectly with every bounce and pullback.

With the market already nearing overbought, a break above the flag formation and above resistance at $134.00 may signal another extended run is starting, which will likely lead to the market becoming severely overbought before any pullback occurs. If this happens, look for a re-test of the previous high set at the end of April.