Last week was highlighted by five straight days of gains in the S&P 500. However, in her most recent note Bank of America technical research analyst Mary Ann Bartels continues to see a high risk of a major market selloff.”Our view is the same – the US equity market is consolidating after a breakdown from a distribution top and the risk is for deeper tests of support. Initial support is 1100- 1020, but there is a 50% probability that the S&P 500 tests 985-910 based on measure move price projections and the bear flag pattern. The S&P has rallied into important resistance at 1200 to 1260 with the declining 200-day moving average near 1283. Bottoms tend to take time to build and involve a period of testing, retesting, and undercutting prior lows – this could extend into 2012.”
The S&P 500 closed at 1216 on Friday, which means the index would fall as much as 25% to get to Bartel’s 910 level.
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