Mixed Feelings about Equity Indices

In my last post on Thursday I was looking at the solitary break back over the daily middle band on SPX and considering the possibility that SPX might go higher. SPX then broke back below the daily middle band again.

I was also looking at the strong rally on the Philadelphia Semiconductor Index (SOX) and looking at the very binary setup there where it is likely either to head down to the fixed H&S target in the 9,150 area or, on a break back over the right shoulder high at 13,249.07, to reject back up to a retest of the all time high.

SOX has since given back most of that rally, but is still in that same inflection point, as it may currently be forming a double bottom to go higher. A double bottom setup that forms at the current low at 11,194.60 could deliver a bigger rally or full rejection higher. A sustained break below would look for that 9,150 target.

SOX daily chart:

So as we stand after the failed rally yesterday, with all of SO, SPX, QQQ, DIA & IWM still below their daily middle bands, and all also on fixed daily RSI 14 sell signals, there is a clear opportunity to break lower here, and I’ll be watching for that today and tomorrow. Tomorrow leans bearish and is also FOMC, where the Fed may of course have bad news about inflation and interest rates.

So what are the other pattern targets looking lower here? Aside from on SOX there’s nothing that dramatic to see. On SPX a small H&S has broken down with a target at a retest of the late July low at 7294.18.

SPX 15min chart:

On IWM there is a larger H&S now that has broken down with a target in the 279 area.

IWM 15min chart:

On DIA a small H&S has broken down with a target in the 510 area, though a larger H&S may also be forming.

DIA 15min chart:

Is there a bull scenario here? Yes, though the Iran War news isn’t great and may well get worse. All of these H&S patterns, as with the H&S on SOX, are of course potentially bullish patterns if they fail on a break back over the H&S right shoulders.

There is a good quality daily RSI 5 buy signal that fixed yesterday on DIA, though it is the only one across these five indices and DIA tested but failed to break back over the daily middle band yesterday.

DIA daily chart:

There is also a potentially bullish setup on QQQ here, with what looks like a bull flag formed from the all time high, and possible RSI 14 and RSI 5 buy signals brewing on the hourly chart:

Overall equities are still in the same inflection area that they were in last Thursday but have moved back down to the bottom of that area. There is an opportunity to break lower here and, if we are going to see that happen, a decent timing opportunity to do that this week. This isn’t yet a strongly directional setup, but as long as all five of these equity indices remain below their daily middle bands, the odds lean towards continuation down. If we were to see a strong move higher though, these setups could all turn bullish with targets at retests of their all time highs.

If you like my analysis and would like to see more, please take a free subscription at my chartingthemarkets substack, where I publish these posts first. I also do a premarket video every day on equity indices, bonds, currencies, energies, precious commodities and other commodities at 8.45am EST, but only for paying subscribers. Other places to find me are my page on the platform previously known as twitter, and my YouTube channel.

A Battle of a Band

In my post on Friday 12th June I was looking at an inflection point on multiple US equity indices where I was expecting to see a number of H&S patterns to fail with targets at retests of the all time highs (ATH). The H&S patterns failed, and we saw ATH retests on DIA and IWM, but never saw those ATH retests on SPX or QQQ.

The main reason we never saw those retests was the weakness on the Philadelphia Semiconductor Index (SOX) which dropped over 20% from the June high into the low last week.

There too we see another H&S, which has broken down with a target in the 9150 area and the main reason we have seen a decent rally attempt on SPX and QQQ this week is that we have been seeing a strong rally on SOX, with a possible target at the daily middle band, currently at 12,785.

SOX too is in an inflection point here, where either that H&S continues down towards the target, or rejects back up to the high. The dividing line for that is at the H&S right shoulder high at 13249.07.

SOX daily chart:

What are the chances that SOX is starting to reject back to the all time highs? Well there is a decent setup on the hourly chart, with a possible alternate bull flag falling wedge formed from the high. On the pattern setup I’d give this 70% odds of continuing down, and 30% odds of rejecting back up to the highs.

SOX 60min chart:

On SPX we saw a break back over the daily middle band on Tuesday, with a confirming close above yesterday. This could be the start of a break up towards towards an ATH retest, but we need to see more evidence of strength from SPX and from the other US indices, as all of DIA, IWM and QQQ are still closing below their daily middle bands.

SPX daily chart:

DIA has been testing the daily middle band over the last two days but has closed both days below:

DIA daily chart:

IWM has been testing the daily middle band over the last two days but has closed both days below:

IWM daily chart:

QQQ has been trailing the others over the last month, in significant part due to the weakness on SOX, and I was talking in my The Bigger Picture webinar on Sunday for paying subscribers on my The Bigger Picture substack (circa 5min mark) about QQQ hitting the 3sd daily lower band on Friday as that is a good level to see a decent rally. We’ve seen that rally but, as with SOX, QQQ is still well below the daily middle band and would need a strong break above it to open a retest of the ATH.

QQQ daily chart:

Is there a setup for SPX to fail here? Yes. On the 5min chart I drew in an ideal bear flag channel resistance trendline on Tuesday and as you can see, that trendline turned out to be the rally high so far. If we don’t see a break up on SPX I’d expect to see a retest of Friday morning’s low soon.

SPX 5min chart:

I’m keeping an open mind here as I still have those targets at retests of the all time highs on SPX and QQQ, and that looks like unfinished business. Overall though I think this setup is still leaning towards seeing a retest of last Friday’s lows next. A stronger and wider break up on US indices could change that, so we’ll see today or tomorrow whether that can be done.

If you like my analysis and would like to see more, please take a free subscription at my chartingthemarkets substack, where I publish these posts first. I also do a premarket video every day on equity indices, bonds, currencies, energies, precious commodities and other commodities at 8.45am EST, but only for paying subscribers. Other places to find me are my page on the platform previously known as twitter, and my YouTube channel.

Oil Update, Market Killing$ & Warning Shots

In my post on Tuesday 7th July I was looking at the setup for a strong rally on Oil starting and we have seen that strong rally since.

In my last post on Tuesday 14th July I was looking at the targets and resistance levels on Brent Crude (Brent) and West Texas Intermediate Crude (WTIC) and noting that both were getting close to their 3sd upper bands, and that the 89-90 area on Brent and 84-5 area on WTIC might well hold on those this week to allow the daily middle bands on both to start turning up, and for the daily bands to start expanding. Both peaked that day, spent two days forming bull flags, and have made higher highs today.

So what now?

Well I would mention that there has been a strong pattern during this war of ‘peace negotiations’ being announced on Sundays just before futures markets reopen. I don’t think that seems a big risk this weekend , as Trump appears to be wanting to escalate the war, and Iran seems disinclined to engage with the US at all, but there do seem to be strong incentives for some in the US administration to conduct talks regularly:

That said, now that Brent and WTIC have had some time for the daily bands to turn and expand, and with more data points from the bull flag lows, it’s time to look at upside targets and resistance levels again.

On the Brent daily chart the middle band has turned up and the bands are now expanding. Brent is close to a test of the 50dma at 89.41, and the 3sd upper band is now at 92.46, up from 89.18 at my post on Tuesday. As the bands expand the 3sd upper band can get to a stage of rising several dollars per day.

BRENT daily chart:

On the Brent hourly chart an RSI 14 sell signal fixed but didn’t make target at the flag low. That’s worth bearing in mind but these regularly fail in strong uptrends. As I mentioned on Tuesday there is some established (potential support turned) resistance in the 89.5 to 90 area, an open IHS target in the 91.6 area and a rising channel has been established from the right shoulder low with channel resistance currently in the 93.25 area.

There are two possible IHS necklines that might be the next big target, with my preferred option in the 98.99 area, and a less good option in the 96.36 area.

BRENT 60min chart:

On the WTIC daily chart the middle band has turned up and the bands are now expanding. WTIC is close to a test of the 50dma at 85.21, and the 3sd upper band is now at 86.03, up from 84.36 at my post on Tuesday. As the bands expand the 3sd upper band can get to a stage of rising several dollars per day.

WTIC daily chart:

On the WTIC hourly chart an RSI 14 sell signal fixed but didn’t make target at the flag low. That’s worth bearing in mind but these regularly fail in strong uptrends. As I mentioned on Tuesday there is some established (potential support turned) resistance in the 86 area, an open IHS target also in the 86 area and a likely rising wedge has been established from the right shoulder low with wedge resistance currently also in the 86 area.

There are two possible IHS necklines that might be the next big target, with my preferred option in the 96.98 area, and a less good option in the 93.65 area.

WTIC 60min chart:

In terms of how far all this goes, that is to a large extent dependent short term on the status of the Iran War, though I think enough supply chain damage has already been done that even if the war was to end this weekend, oil might well be impressively volatile for another year or two.

In terms of how the war goes it could get a whole lot worse. I’ve been mentioning the worst scenarios regularly in recent months, and mentioned it again in my equities post this morning on my main substack. On the less bad scenario Iran may attack oil and gas infrastructure in Gulf neighbours and extensive damage could be done that might take years to repair. On the disaster scenario Iran attacks water desalinisation infrastructure in Gulf neighbours and all the Gulf states apart from Iran and Iraq might become semi to mostly uninhabitable until that infrastructure was rebuilt.

Iran has been clear that they won’t do that unless the US starts attacking their civilian infrastructure and this week the US has started attacking their civilian infrastructure. In response Iran attacked oil infrastructure in Bahrain yesterday and a water desalinisation plant in Kuwait overnight in what appear to be warning shots to the US to change direction. We’ll see how that develops this weekend but further escalation has the potential to send oil prices into uncharted territory, which would be over $225 per barrel on both Brent and WTIC, adjusted for inflation.

Are the Trump administration insane enough to risk this disaster scenario in the Persian Gulf? Yes, in that they have already started down that road this week despite clear warnings from Iran. We may find out whether they are prepared to continue risking that this weekend. I’ll be watching with interest & everyone have a great weekend. :-)

If you like my analysis and would like to see more, please take a free subscription at my thebiggerpicture substack, where I publish these posts first and for members (from next week) also bi-weekly videos looking at equity indices, bonds, currencies and commodities. Those videos are posted on my Youtube channel after a seven day delay. Links to all my posts from my charting substacks are also always posted on my twitter.

Washing the Windows

It has been a few weeks since I wrote a post about the US equity markets and in large part that has been because while the short term patterns and setups are still important, and I’ve still been looking at those in detail in my daily premarket videos for subscribers, the background to this market, while generally ignored, has been becoming increasingly obvious and divergent from what we are watching on the surface.

I was talking to a friend about this yesterday and compared it to washing the windows on a house that was burning down. I said that as this happened the person washing the windows would either be unaware that the house is burning down, or didn’t yet see why that might be important. Only when that perception changed would he/she stop washing the windows.

Donald Trump signed the MOU with Iran at Versailles twenty nine days ago, and said then that he had to sign it as the world was three or four weeks away from a major economic crisis if the Strait of Hormuz was not reopened. I thought that assessment was reasonable. The peace lasted two or three weeks, a lot of oil cleared through the Strait, but not enough to change more than the timing of that major economic crisis. Since then the war resumed ten days ago, the Strait is closed again, and the war is escalating.

World oil stocks are at low levels not seen in decades, the US has started bombing civilian targets in Iran and Iran is starting in response to bomb civilian targets in the territory of US allies in the Gulf, who have themselves started to get more involved directly in this war. This is a huge powder keg, the fuse is lit, and the world economy is sitting on top of it. If Iran starts large scale attack on oil infrastructure in the Gulf or, worse, water infrastructure, that powder keg will explode, and the effect on the world economy may be devastating.

So I’m going to be looking at the surface of the markets while this continues, but also this background to this market that may at any point become much more prominent in market sentiment.

In terms of the surface of the markets I was writing in my last post on 12th June that I was looking for new highs on US equities and we saw those on IWM and DIA. We didn’t see those on SPX or QQQ, mainly because Tech has been lagging other US indices for several weeks now and dragged SPX down with it. That’s not because of the Iran War and may well continue and get worse. I would still very much like to see an all time high retest on SPX and on the daily chart SPX is holding up well and came within 40 handles of an all time high retest this week.

SPX daily chart:

The picture on QQQ is not encouraging though, with QQQ failing to hold above the daily middle band in recent weeks, though an overall bull flag may be forming here.

QQQ daily chart:

IWM has also lost the daily middle band in recent days, and has also broken down yesterday below the rising support from the late March low.

IWM daily chart:

I’ve been watching possible topping patterns on the hourly futures charts this week and overnight ES broke down from a high quality double top with a target in the 7430 area.

ES Sep 60min chart:

If this break down on ES is sustained today then I have two other topping patterns that I have been watching form on US indices this week.

The first of those is on RTY, where a good quality possible H&S has been forming that on a sustained break down would look for the 2820 area.

RTY Sep 60min chart:

The second of those is on YM, where a decent quality possible H&S has formed that on a sustained break down would look for the 50,500 area.

YM Sep 60min chart:

This is a fragile market, and if confidence cracks we could see a fast move downwards. Is today the day that starts? Possibly, we’ll see. Everyone have a great weekend. :-)

If you like my analysis and would like to see more, please take a free subscription at my chartingthemarkets substack, where I publish these posts first. I also do a premarket video every day on equity indices, bonds, currencies, energies, precious commodities and other commodities at 8.45am EST, but only for paying subscribers. Other places to find me are my page on the platform previously known as twitter, and my YouTube channel.

Oil Targets and Resistance Levels

In my last post on Tuesday 7th July I was looking at the setup for a strong rally on Oil starting and at the time of writing today Brent Crude is up about $11 and West Texas Intermediate Crude (WTIC) is up about $8 since then. So what now?

On the daily chart the highs last week were at the daily middle bands on both, and in my The Bigger Picture webinar on Sunday I was talking about the importance of those middle bands being broken with confidence to open further upside. That was done yesterday, so today I’m looking at upside targets and resistance levels for this move.

On Brent Crude a decent quality IHS has broken up with a target in the 91.60 area. That looks credible as a target, though I would note that there is an area in the 89.50 to 90.00 range that was important on the way down. That could now be resistance. Above that there are significant broken support areas at 96 and 98/9.

BRENT 60min chart:

On the Brent Crude daily chart, price is currently over the daily 2sd upper band, with the 3sd upper band not far above at 89.18. The daily middle band is still turning up and the bands have not started expanding yet so I’m thinking that (subject to news), the 89 - 90 area may well hold as resistance this week. The daily RSI 5 buy signal I was looking at last week reached target and the weak RSI 14 buy signal fixed. There is no current negative divergence on the daily RSI 5.

BRENT daily chart:

On the WTIC hourly chart a decent quality IHS has broken up with a target in the 86.00 area. That looks credible as a target though I would note that there is an open breakaway gap area just above in the 82.20 to 83.00 area (the equivalent gap on Brent Crude was filled overnight), and an area in the 86.00 to 86.30 range that was important on the way down. Either of those could now be resistance.

WTIC 60min chart:

On the WTIC daily chart price is currently testing the daily 2sd upper band at 80.59, with the 3sd upper band currently at 84.36. The daily middle band is still starting to turn up and the bands have not started expanding yet so I’m thinking that (subject to news), the 84-5 area may well hold as resistance this week. The daily RSI 5 buy signal I was looking at last week reached target and the weak RSI 14 buy signal fixed. There is no current negative divergence on the daily RSI 5.

WTIC daily chart:

The last chart for today is the Heating Oil daily chart where is good quality bull flag formed from the March high and broke up this week. This flag has a target at a retest of the March high at 4.71.

HOIL daily chart:

There is an obvious caveat I need to make here, in that all of this is very subject to news, and if another peace process were to start seriously then that might send the oil markets down again. There is however no current sign of any peace process starting and both sides seem to be getting more entrenched into their positions.

Is there a disaster scenario here we should be aware of? Definitely if Iran are pushed to a stage where they felt desperate, and the Persian Gulf allies of the US were to look more directly involved in the war against Iran, rather than just hosting the bases of the US while the US and Israel wage war against Iran. I would note that this is increasingly the case with Bahrain, Kuwait and UAE directly and also Saudi Arabia against the Houthis. This might lead to Iran attacking oil and gas infrastructure in those countries, which would be very bad, or perhaps even their water desalinisation infrastructure, which could make much of the Middle East uninhabitable for an indefinite period. I am hoping that there are enough sane people on both sides to avoid this scenario.

If you like my analysis and would like to see more, please take a free subscription at my thebiggerpicture substack, where I publish these posts first and for members (from next week) also bi-weekly videos looking at equity indices, bonds, currencies and commodities. Those videos are posted on my Youtube channel after a seven day delay. Links to all my posts from my charting substacks are also always posted on my twitter.

Decent Oil Bounce Likely Starting Here

On the 2nd of June I wrote a post looking at the bullish looking setup on oil, but that then fell apart in the days before the Memorandum of Understanding (MOU) was signed by President Trump at Versailles on 17th June. In the three weeks since then the Brent and West Texas Intermediate (WTIC) crudes have fallen almost to pre-war levels before the most recent low last week.

Now after any steep decline there will generally be a low found and a bounce will start that should at least retrace a sizable proportion of the preceding decline, usually in the 38.2% to 61.8% range. I’ve been watching for that bounce and I think that has now likely started, though that doesn’t mean we won’t see retests of last week’s lows as part of that process.

So what’s the setup so far?

On the daily chart there are initial targets that might hold a first bounce and on WTIC those obvious resistance levels are the 200dma, currently at 74.00, and the daily middle band, currently at 76.46. Possible daily RSI 14 (weak) and RSI5 (full) buy signals are also brewing and will likely fix at the close today.

WTIC daily chart:

On the BRENT daily chart there are initial targets that might hold a first bounce and those obvious resistance levels are the 200dma, currently at 78.59, and the daily middle band, currently at 79.61. Possible daily RSI 14 (weak) and RSI5 (full) buy signals are also brewing and will likely fix at the close today.

BRENT daily chart:

I was looking at the short term IHS setups on Brent Crude and WTIC in my premarket video for subscribers this morning and they have both since made target and somewhat more.

On WTIC an IHS broke up overnight with a target in the 71.35 area, and I drew in two possible larger IHS necklines at 71.56 and 72.53. At the time of writing WTIC has reached 72.47, so almost at the higher of those two. If both are broken then I’d either be looking for a larger double bottom setup involving another low retest, or the two higher possible H&S necklines in the 79 to 80 area.

WTIC 5min chart:

On BRENT an IHS broke up yesterday with a target in the 74.90 area, and I drew in two possible larger IHS necklines at 74.83 and 75.80. At the time of writing WTIC has reached 76.33, so above both of those but possibly still able to use the higher neckline if we see a retracement from that high. If both are broken hard then I’d either be looking for a larger double bottom setup involving another low retest, or the two higher possible H&S necklines in the 82 to 83 area.

BRENT 5min chart:

Is there much reason to think that oil might go up much further short term? Well the US has been trying to set up a route through the Strait of Hormuz independent of Iran since the MOU was signed, despite one of the explicit conditions agreed in the MOU being that the Strait would remain under Iranian control. Iran isn’t prepared to concede this point and have hit five tankers using the US route in the last 24 hours. The last time Iran started doing this on 25th June the US responded with retaliatory strikes, so we’ll see what happens in the next day or two.

While I’ve been writing this there have been more updates:

I’m going to be writing a follow up post later this week talking about where I think oil prices will be heading over the rest of the year, with an update on this short term bottoming setup.

If you like my analysis and would like to see more, please take a free subscription at my thebiggerpicture substack, where I publish these posts first and for members (from next week) also bi-weekly videos looking at equity indices, bonds, currencies and commodities. Those videos are posted on my Youtube channel after a seven day delay. Links to all my posts from my charting substacks are also always posted on my twitter.