Nice Rally, No Cigar

That was a nice rally yesterday, and I was surprised and impressed that $SPXEW, the S&P with all components given equal weight, even made a new all time high, though that bullish candle has been entirely reversed today and I’d note that the high retest has now set up a beautiful possible double top on this chart. That does underline the point I was making yesterday that US shares excluding Tech have been on an impressive uptrend since the start of October and have not obviously turned down yet, though that may now be changing:

SPXEW daily chart:

DIA also delivered a big move, and even managed to reached the daily 3sd upper band at the high, though almost the entire move including the large opening gap up was also given back today:

DIA daily chart:

So what happened? Well as I mentioned in my posts on Monday and Wednesday, any sustainable rally would need to be led, or at least joined, by Tech, and the Tech move off the lows was comparatively very modest. I was warning in my premarket video this morning that the lack of Tech participation was a bad sign and well, here we are.

In my post on Monday I was saying that a rally was likely after the full hit of the daily 3sd lower band on Friday for the fourteenth time in the last eighteen months, and gave the following stats on past performance when that happened previously:

• 9x delivered a rally that broke back over the daily middle band (currently 7723)

  • of which five delivered new all time highs, including a further two on the way to those new all time highs.

• 2x delivered a decent rally that peaked on the next trading day

• 1x delivered a decent rally that peaked on the second trading day

• 1x delivered two more days of 3sd lower band tests into a big swing low

On this basis, assuming we don’t see serious lower lows today, which currently looks like a safe assumption, there is therefore about a 40% chance that a swing low was made on Friday, leading to a new all time high. There is about a 35% chance that a rally has started that will deliver a break back over the daily middle band, but not a new all time high. There is about a 25% chance that this rally will peak today or tomorrow before making a new low.

Friday’s fourteenth hit delivered a rally that peaked on the third day, possibly delayed by the midterms, before delivering a lower low today.

The double top setup on SPX that I was looking at on Monday broke down today with a target in the 7160 to 7190 range.

Now this doesn’t mean that target will be reached, and I’d note that SPX delivered a (fifteenth) test of the daily 3sd lower band at the low today, after a clear test and fail of key resistance at the daily middle band yesterday. That resets the clock, sets up another likely rally from the lows today, and based on the last eighteen months the odds are now as follows:

• 9x delivered a rally that broke back over the daily middle band (currently 7723)

  • of which five delivered new all time highs, including a further two on the way to those new all time highs.

• 1x delivered a decent rally that peaked on the third trading day

• 2x delivered a decent rally that peaked on the next trading day

• 1x delivered a decent rally that peaked on the second trading day

• 1x delivered two more days of 3sd lower band tests into a big swing low

On this basis, with the low probably in or close at the lows today, there is therefore about a 38% chance that a swing low was made today, leading to a new all time high. There is about a 32% chance that a rally has started that will deliver a closing break back over the daily middle band, but not a new all time high. There is about a 30% chance that this rally will peak by the close on Monday before making a new low.

If we continue going down hard today then we may see that double top target made in the next couple of days, but the odds increase that the next significant low will end the move.

SPX daily chart:

So what about Tech? Well QQQ and SOX (Philadelphia Semiconductor Index) both also hit their daily 3sd lower bands today, so we may see decent rallies there too. I was looking at a large double top setup on QQQ on Monday and that has also now broken down with a target in the 554.71 to 571 range, getting close to the annual pivot at 550.49, and at or a bit past the 50% retracement of the move up from the April 2025 low. Rising support from that April 2025 low was also broken slightly at the low today on QQQ.

QQQ daily chart:

In my post yesterday I was looking at the Philadephia Semiconductor Index (SOX) and mentioned that neither of the ideal overall bull flag support trendlines I had drawn in had been hit and my preferred (lower) option was hit earlier today before breaking.

This is a decent bull flag setup and the break below may be a bullish underthrow to make the flag low. If so SOX would make a big low in this area before starting a move back to retest the all time high.

That‘s a decent option but it’s worth remembering that 30% of decent quality bull flags break down rather than up and, as I also mentioned yesterday, if this break down is sustained then next next obvious support is 6% lower in the 8500 area.

SOX daily chart:

Lastly my half horseman from Monday’s post was the H&S that had broken down on the SPCX daily chart looking for a target at a retest of the August (and lifetime) low at 104.83. That saw a low at 120 earlier today which put that about halfway to target.

I was asked on Monday what a half horseman would look like and in this case I’m thinking that would look like a chubby little Texan on a Burro :-)

SPCX daily chart:

The new lows on SPX, QQQ and DIA today are opening the door to what could be a much larger retracement led by Tech over the rest of November. The other topping patterns I showed on DIA and IWM on Monday haven’t broken down yet but if they do they will open that door wider.

Am I thinking this might be the start of a full bear market? Too early to say but not really seeing the setup for that yet.

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.

The Elephant In The Room

In my post on Monday I stated that any move to retest the highs would require the participation of Tech and said I’d do a dedicated post yesterday to explain why that is very likely the case. That has slipped a few trading hours into this morning.

The chart below you’ve already seen if you read my post on Monday, and that is the SPX daily chart, showing a new all time high at the start of October, and then a bumpy retracement since then.

SPX daily chart:

The chart below is very different, on this chart there was a significant swing low at the start of October, and a strong uptrend for the rest of the month, with the index staying close to the daily upper band for most of the rest of the month and the latest high on this move yesterday.

The chart below is $SPXEW, the version of SPX that includes all the same companies, but with them all having equal weight rather than being weighted by market cap. The difference is stark, and that difference is the relatively modest in number but very heavily weighted Tech component in SPX.

According to quant500.com as of Monday there were 86 Tech companies in SPX, accounting for 36.2% of the index by market cap, though it seems likely that the weight in the index was in the 40% to 45% range before recent declines, given that QQQ is down over 10% since the ATH at the start of October, and SOX is down about 30% since the ATH in June.

Either way it seems that over 80% of SPX companies were in an overall strong uptrend since the start of October, but the downtrend in Tech was enough to drag the whole index into a significant downtrend for the month.

SPXEW daily chart:

DIA has a Tech component too, with six Tech companies out of the total of 30, weighted today at 18.6% of the index by market cap. That too made a significant low at the start of October and was in a strong uptrend over most of October, but was dragged down towards the end as GOOG fell 20%, CSCO fell 15%, AAPL, AMZN & NVDA dropped 10% and MSFT dropped 6%. That was enough to drag the whole of the Dow 30 down over 3% over the last ten days of October against the 2% or so the overall index actually dropped over the period. Excluding Tech, DIA was also in a strong uptrend through October.

DIA daily chart:

Tech is the elephant in this index room, and if Tech hadn’t dropped hard from the high at the start of October, both SPX and DIA would have had a strongly bullish month. That is the reason that I said that if we are going to see US indices follow the rest of the historical stats up into the end of the year, Tech will have to lead or at least join that move.

How likely is that? Well there are some signs that Tech could turn back up here.

On QQQ a daily RSI 5 buy signal fixed last week and these historically perform well. As I write a possible hourly RSI 14 is brewing and, if it fixes, those also tend to perform well. QQQ was testing the 200dma at the lows so far this week and that is an important level that often holds as support or resistance.

QQQ daily chart:

There is also a daily RSI 5 buy signal fixed on the Philadelphia Semiconductor Index (SOX), though as with the one on QQQ the index has fallen significantly since that buy signal fixed. There is also an hourly RSI 14 buy signal that fixed yesterday. SOX has now fallen an eye-watering 30% or so high to low since the high in June and is still testing a decent support level between 10,000 and 10,500.

There was an H&S that had broken down on SOX with a target in the 9150 area that I posted a few times in December and that failed at the start of October with a target at a retest of the all time high. That target isn’t always made but usually delivers.

If it is going to deliver here then the current pattern forming from the June high would likely be a bull flag and I have drawn in a couple of flag support trendline options. Neither of those has been reached yet but the lower low below the July low at 10,445.44 on Monday is encouraging for this being a bull flag. If it is a bull flag I would expect the next significant low soon. If it isn’t a bull flag then I’d note that I see almost no support between 10,000 down to 8,500.

SOX daily chart:

There is a lot of talk here that Tech is in an AI bubble, which I agree with, and that the AI bubble has now popped, which I am doubtful about, but could be the case. If the AI bubble has popped then the aftermath could easily drag SPX down 50% all time high high to low as the air comes out of the bubble.

As for the bubble I’m planning another post this week explaining why I believe that AI is a speculative bubble, though that post might get bumped into next week if the rest of the week on SPX is particularly interesting.

In terms of whether that AI bubble has popped I’m keeping an open mind, though I’d note that while identifying likely bubbles is fairly easy, identifying when that bubble is bursting is notoriously hard. The patterns on the individual Tech AI players don’t look that encouraging as yet, and the topping process can take a few months to a couple of years. We’ll see.

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.