In my post on Wednesday 19th Feb I was looking at the very nice looking topping setups on SPX, QQQ and DIA and somewhat less nice topping setup on IWM, and in my post yesterday I reviewed those, which have now all broken down with the exception of the big double top pattern on DIA.
I don’t discuss politics much generally but given the news bomb action we have seen in recent weeks and the rapid changes we are seeing in the economic and political structure of the world around us this year, I want to talk briefly about Trump and the tariffs that he is currently very keen on imposing on many or all of those who trade with the US.
A lot of market action this year is likely to be about tariffs and actually my forecast for equity indices this year that I have been repeating at the end of every post so far this year is significantly based on tariffs. My working assumption at the start of the year was that the new administration would impose tariffs and other economic disruptions and that would depress the markets in the first half of the year. This was clearly trailed by Trump and his team in the election campaign, and then after the election, and he has been delivering on that so far this year.
My historically based expectation after the imposition of widespread tariffs was and is that prices and interest rates would rise quite a bit, US growth would be depressed, quite possibly with the US entering recession, markets would fall and a lot of MAGA supporters would get economically hurt. Trump cares about the continuing support of his MAGA base and longer term perception of his economic legacy and should then change course, delivering a sharp recovery in equity markets and confidence starting in Q3 or Q4.
Obviously this is just a projection, also heavily anchored in classical technical analysis, but I’m not seeing any big issues with it so far.
So where are we on tariffs now? Longer term Trump was saying in his speech yesterday that he loves tariffs, announced tariffs against the EU and others likely starting on April 2nd, and projected that the US would raise trillions of dollars in tariffs over coming years, so the likelihood of further tariffs is very high and the economic and market disruption that these will most likely deliver over this year.
What about Canada and Mexico? Well the tariffs were implemented yesterday, Canada retaliated immediately, and I understand that the US is now retaliating against Canada’s retaliation, with tariffs against Canada possibly now rising to 50%. That’s the bad news.
On the other hand the new Commerce Secretary Howard Lutnick was saying yesterday that there might be a deal on Canadian tariffs to reduce or eliminate them in the next day or two and I understand that talks are being held today on that. If those tariffs are lifted, and that’s a significant ‘if’, as any deal might require significant concessions from Canada which may well not be forthcoming, then we could see a very strong rally in equity markets for one to three weeks until the reality hits of a more general trade war starting in early April. If those Canada tariffs are lifted in the next day or two then we may well see that very strong rally, and we should all be prepared for that.
In the absence of such a deal, I’m not currently seeing much reason to think that equity prices won’t continue to decline in coming weeks and months. On to the markets.
I covered the current status on the big topping patterns on the US equity indices in my post yesterday, so for the moment I will refer people back to that post and note any updates in my posts until things have changed enough to warrant a more general update. Obviously as I noted yesterday, there are possible daily RSI 5 buy signals brewing on SPX, QQQ and IWM, and one already fixed on DIA and if we should receive some good news on tariffs then those may fix and deliver a strong rally.
In the meantime I am watching the following.
Bitcoin is very significantly correlated with equity prices, but sometimes it makes a significant high earlier than equity prices. I’ve marked in the obvious four examples of this below in the last few years (red highlight zones), including the current one.
Now the first example marked from 2014 had Bitcoin retrace mostly without SPX for several months before bottoming while SPX delivered a modest decline in Q4 2014. A repeat of this could see both bottom out soon with a sharp last move down on Bitcoin while SPX declined modestly, but likely a bit more.
The other two examples also both have a sharp last move down on Bitcoin, but also a sharp move down on SPX. If we see a repeat of these two we would see a significant further decline on both Bitcoin and SPX into a low made together in one to six months. I’m leaning towards this scenario here.
I would note that all of these scenarios involve a sharp lower low on Bitcoin, but I’m expecting that in any case. I have a double top that has broken down on Bitcoin with a target in the $69k to $70k area, in a very attractive bullish retracement and backtest target zone, and I’m not seeing any obvious reason to think that won’t make target.
BTC (LOG) vs SPX weekly (LOG):
On the SPX daily chart the 200dma was tested at the low yesterday for the first time since November 2023, and this is a very big support level. If we see this break and convert to resistance then this would open significant further downside.
I would also note the two volume spikes over 3.5B in the last two days. This is often a sign that a short term high or low is close.
SPX daily chart:
On the hourly chart it looks like a small bear flag may be forming and I’m leaning , subject to newsbombs, towards a low retest. If SPX then reaches the 5695 to 5715 area, the first and smaller double top target on SPX would be hit.
SPX 60min chart:
Lastly I want to have a look at the important support levels at the weekly middle bands. I’ll ignore IWM, as that has been in a clear downtrend for a few weeks now but NDX closed clearly below the weekly middle band at the end of last week, and both SPX and INDU have broken hard below the weekly middle band this week. I’m looking for a possible confirming close below the middle band on NDX this week and, unless this move reverses very hard by Friday, on SPX and INDU next week. Conversion of these levels to resistance is the backbone of any really serious decline, though I’m not currently expecting to see a bear market move of more than 20% on equity indices this year.
NDX weekly chart:
As I have been since the start of 2025 I’m still leaning on the bigger picture towards a weak first half of 2025 and new all time highs later in the year, very possibly as a topping process for a much more significant high. One way or another I think we’ll be seeing lower soon and I’m not expecting this to be a good year for US equities, not least because both of the last two years have been banner years for US equities. A third straight year of these kinds of gains looks like a big stretch. I could of course however be mistaken.
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