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.

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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. :-)

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