S&P 500 Inverted Scallop

By Colin Twiggs
September 1, 2016 3:00 a.m. EDT (5:00 p.m. AEST)

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North America

The S&P 500 is forming an inverted scallop below 2200. A rounding top requires more of a bowl shape with even sides, like an inverted "U". The inverted scallop looks more like an inverted fishing hook, with a much shorter leg on the right. A strong continuation pattern in bull markets according to Thomas Bulkowski, who ranks it 3 out of 23 (1 being best), with only a 4% break even failure rate. The pattern is completed by breakout above the high — 2200 in this case — and would only rally after testing support, around 2100 to 2130. Strong Twiggs Money Flow values suggest long-term buying pressure.

* Target calculation: 2100 + ( 2100 - 1800 ) = 2400

Last week's update from the Bureau of Economic Analysis, however, shows profit margins remain under pressure. Profit per unit of gross value added shrank by more than 10 percent (year-on-year) in the 2nd Quarter. Falling profit margins normally precede a recession. The difference this time is record low interest rates. Further decline in the 3rd quarter, however, would be cause for concern.

Australia

The ASX 200 broke support at 5500 and is likely to test the lower trend channel. Bearish divergence on Twiggs Money Flow warns of strong selling pressure. Breach of the lower trend channel would test primary support at 5100.

* Target calculation: 5400 + ( 5400 - 5100 ) = 5700

Australian banks are again retreating. Breach of support at 7700 would test primary support at 7200. Declining Money Flow peaks warn of strong selling pressure.

Men must be decided on what they will NOT do, and then they are able to act with vigor in what they ought to do.

~ Mencius, Confucian philosopher (c. 372 - 289 BC)