Well That Escalated Quickly

In my post on Tuesday 4th August I was looking at the ambiguous setup on US indices and the Nikkei after the strong rally into the beginning of August, noting the three good quality topping patterns that were still intact on the Philadelphia Semiconductor Index (SOX), QQQ and Nikkei. Since then the Nikkei pattern has failed with a target at a retest of the all time high.

I also noted that SPX was close to the daily 3sd upper band, and said that I was looking for a short term consolidation of a week or so, to allow time for the daily middle bands to go higher, and for the daily outer bands to expand, opening up further possible upside. We have since seen that consolidation last for four weeks so far, the daily middle bands turned up, and the outer bands expanded, but then contracted again before the lower bands were hit again this week.

In my last post on Wednesday I was looking at the case for making a short term low and perhaps retesting some all time highs. I was looking for a rally, then a low retest, and then ideally retesting the all time high in a three day strongly bullish leaning series of days Wednesday to Friday next week.

So far that has been going faster than I expected and the odds of a low retest have dropped. On the SPX the very nice bull flag channel I was looking at on Wednesday SPX returned to flag resistance and broke it slightly at yesterday’s high. That’s not encouraging for a low retest and and is suggesting a strong break up towards a retest of the all time high in the near future.

SPX 15min chart:

On the daily chart SPX broke back with conviction over the daily middle band yesterday. This might fail, and if it is going to fail that would likely be today or perhaps Tuesday. Another close above today would confirm the break.

SPX daily chart:

On the daily chart DIA broke back with conviction over the daily middle band yesterday. This might fail, and if it is going to fail that would likely be today or Tuesday. Another close above today would confirm the break.

SPX and DIA were the star performers yesterday and QQQ was significantly weaker, though it did manage to close at resistance on the daily middle band. Considered with the breaks above on SPX and DIA, the odds are decent that we will see a break back above soon.

QQQ daily chart:

Bringing up the rear on the US indices was IWM, struggling to rally and not managing to get anywhere close to a daily middle band retest. This is the US index traditionally most affected by rising interest rates of course and led the way down on this retracement.

IWM daily chart:

Lastly on the Philadelphia Semiconductors Index (SOX) there has barely been a rally, underlying the the weakness in Tech here and with a strong H&S target in the 9150 area still open.

SOX daily chart:

If we are going to see some high retests and then a larger retrace as the SOX chart is suggesting, then I’d note that we already have decent topping patterns that have already broken down on QQQ and SOX, and that a good quality double top has already formed on IWM. The two indices that look most in need of high retests to set up topping patterns are SPX and DIA, which are the two indices that look most likely to see those all time high retests next week. This may be a solid overall topping setup forming.

In the short term the historical stats lean neutral today and Tuesday, and then significantly bullish Wednesday through Friday next week. That would be an ideal window to see those high retests. The odds to retesting this week’s low directly don’t look great, though we may see some retracement today before likely heading to those high retests.

What could change that outlook? Hard breaks back below the daily middle bands today on SPX and DIA. Everyone have a great weekend. :-)

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