Is the S&P 500 Headed for Bearish Territory?
Monday’s big drop in the overall market spooked investors and has given me mixed feelings too.
First, the chart for the SPDR S&P 500 ETF (NYSE: SPY) has a possible inverse head and shoulders pattern forming and that is a bullish factor. Unfortunately, a personal market indicator that I developed in 2009 just gave the strongest bearish reading so far in 2018.
Let’s look at the chart of the SPY first.
We see that the ETF dropped to the 270 level in early October and then bounced to the 281 level. This would be the left shoulder and the left side of the neck. The SPY then dropped to the 260 level and that would form the head of the pattern. It then jumped to the 281 level again to form the right side of the neck and has now fallen for three straight sessions and could possibly form the right shoulder in the next few days.
For the pattern to be completed we would need to see the fund bottom in the 270 area again and then rally above the 281 area.
There are a couple of factors that make me question whether or not it can complete the formation, but the most notable is how the daily stochastic readings just made a bearish crossover out of overbought territory.
The second factor is what I mentioned earlier—an indicator that I developed almost 10 years ago. I call it the market barometer and it came about from some scans I have run every night for ten years now. The scans produce a bullish and bearish list for me each night and then the total results of those lists are included in the barometer. The scans look at a number of technical factors including the RSI, the stochastic readings, volume, etc.
Without giving away too much proprietary information, the barometer’s reading last night was -107 and that is the worst reading it has produced this year. The two lowest readings prior to last night came on January 25 and April 20.
The blue line in the chart is the S&P 500 and the orange bars represent the barometer readings. The two lowest readings that I mentioned above are circled in blue with yesterday’s reading also circled.
Those readings in January and April both came just as the S&P was getting ready for a pretty sizable drop.
This is why I say I have mixed feelings about the overall market right now. On the one hand, you have a possible bullish pattern developing, but on the other hand an indicator I developed is telling me that the market is getting ready to head lower again.
Contributor
Harry Richardson — Algorithmic Trader & Strategy Developer Harry is an algorithmic trader specializing in impulse and breakout trading strategies across cryptocurrency and equity markets. With more than 10 years of experience in developing automated trading systems, he focuses on building structured algorithms designed to capture momentum while maintaining strict risk control. His approach combines quantitative analysis, real-market execution, and continuous performance monitoring. Vitalii prioritizes risk management, drawdown control, and strategy stability over short-term optimization, ensuring algorithms are adaptable to changing market conditions. He has developed and tested hundreds of automated strategies, working extensively with live trading environments, forward testing, and portfolio-level algorithm management. His work centers on transforming trading ideas into fully operational, scalable automated systems.
Momentum Indicator for SPY turns positive, indicating new upward trend
SPY saw its Momentum Indicator move above the 0 level on September 21, 2026. This is an indication that the stock could be shifting in to a new upward move. Traders may want to consider buying the stock or buying call options. Tickeron's A.I.dvisor looked at 76 similar instances where the indicator turned positive. In 67 of the 76 cases, the stock moved higher in the following days. The odds of a move higher are at 88%.
Technical Analysis (Indicators)
Bullish Trend Analysis
The Moving Average Convergence Divergence (MACD) for SPY just turned positive on October 02, 2026. Looking at past instances where SPY's MACD turned positive, the stock continued to rise in 42 of 52 cases over the following month. The odds of a continued upward trend are 81%.
SPY moved above its 50-day moving average on September 17, 2026 date and that indicates a change from a downward trend to an upward trend.
Following a +1.42% 3-day Advance, the price is estimated to grow further. Considering data from situations where SPY advanced for three days, in 301 of 362 cases, the price rose further within the following month. The odds of a continued upward trend are 83%.
Bearish Trend Analysis
The Stochastic Oscillator may be shifting from an upward trend to a downward trend. In 51 of 70 cases where SPY's Stochastic Oscillator exited the overbought zone, the price fell further within the following month. The odds of a continued downward trend are 73%.
Following a 3-day decline, the stock is projected to fall further. Considering past instances where SPY declined for three days, the price rose further in 50 of 62 cases within the following month. The odds of a continued downward trend are 75%.
SPY broke above its upper Bollinger Band on September 21, 2026. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
The Aroon Indicator for SPY entered a downward trend on September 21, 2026. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.
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