The market is close to confirming a 123 bottom or breaking down from a bear flag. The conclusion to this confluence of patterns will be dictating trading over the intermediate-term.
The market has spent the past six sessions of trading in a very tight pattern. for instance :The Dow Jones Industrial Average ($INDU), has been gyrating around the 12,600 level, plus or minus 100 points.
Sticking with the Dow as a measure for the broader market, it has rallied by about 1,000 points from the mid-March low. The Dow has done so in a very tight, aggressive, short-term ascending channel. This channel serves as the support and resistance for a bear flag. A breakdown from the bear flag would be defined with a drop below 12,500; confirmation of the bear flag would come on a drop below 12,200.
keeping the prospects for a 123 bottom alive , the March low is higher than the mid-January low. Horizontal resistance is clearly defined in Dow at 12,750. A breakout above resistance would set the stage for a big rally.
One of the two patterns will probably break by the end of this week. Look is expected to get defensive if the Dow breaks down from the bear flag. Alternatively, look to get bullish if the Dow breaks out above horizontal resistance, confirming the 123 bottom.