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.
SPY in downward trend: price may decline as a result of having broken its higher Bollinger Band on August 04, 2026
SPY broke above its upper Bollinger Band on August 04, 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 A.I.dvisor looked at 40 similar instances where the stock broke above the upper band. In of the 40 cases the stock fell afterwards. This puts the odds of success at .
Technical Analysis (Indicators)
Bearish Trend Analysis
The 10-day RSI Indicator for SPY moved out of overbought territory on August 14, 2026. This could be a bearish sign for the stock. Traders may want to consider selling the stock or buying put options. Tickeron's A.I.dvisor looked at 46 similar instances where the indicator moved out of overbought territory. In of the 46 cases, the stock moved lower in the following days. This puts the odds of a move lower at .
The Momentum Indicator moved below the 0 level on August 18, 2026. You may want to consider selling the stock, shorting the stock, or exploring put options on SPY as a result. In of 76 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
The Moving Average Convergence Divergence Histogram (MACD) for SPY turned negative on August 20, 2026. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 52 similar instances when the indicator turned negative. In of the 52 cases the stock turned lower in the days that followed. This puts the odds of success at .
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 of 62 cases within the following month. The odds of a continued downward trend are .
Bullish Trend Analysis
The Stochastic Oscillator demonstrated that the ticker has stayed in the oversold zone for 2 days, which means it's wise to expect a price bounce in the near future.
SPY moved above its 50-day moving average on July 31, 2026 date and that indicates a change from a downward trend to an upward trend.
The 10-day moving average for SPY crossed bullishly above the 50-day moving average on August 05, 2026. This indicates that the trend has shifted higher and could be considered a buy signal. In of 15 past instances when the 10-day crossed above the 50-day, the stock continued to move higher over the following month. The odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where SPY advanced for three days, in of 362 cases, the price rose further within the following month. The odds of a continued upward trend are .
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