On The Third Day ... of this Rally

In my last post on Friday I was giving the updated stats (based on the last eighteen months) for Thursday’s test of the daily 3sd lower band, and those were as follows:

• 9x delivered a rally that broke back over the daily middle band.

  • of which five delivered 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

Thirteen of the fourteen prior examples delivered a significant rally, of which four delivered a rally that peaked in the first three days before making lower lows. Today is day three of this rally, the current rally high was made yesterday, and we are seeing some weakness in the wake of the bad inflation numbers this morning. Together with the jobs numbers on Friday being strong that is increasing the odds that the Fed raises the Fed Funds rate before the end of the year, and I understand that one Fed Governor has already suggested that increase should be 0.5% rather than the usual 0.25%.

If we see higher highs tomorrow then then the other nine of fourteen previous 3sd daily lower band hits delivered SPX breaks back over the daily middle band (currently 7629), of which five delivered all time high retests (7844.52).

A double top broke down on SPX last week with a target in the 7160-90 area. At this point we would generally either see that target area reached, or a rejection back into a retest of the all time high.

SPX daily chart:

In my post last Wednesday I was showing why any serious move up will require the participation of Tech. On SOX the rally so far looks less impressive than on SPX, but then Tech had fallen a lot more. Yesterday QQQ rose over 1% more than SPX, which was encouraging, but so far today has underperformed by about 0.5%.

The evidence that Tech is reversing back up here isn’t yet compelling, and I’m not seeing any obvious reversal patterns yet, but it’s still very possible and Thursday’s low on the Philadelphia Semiconductor Index (SOX) was a full test of the 50% retracement of the move up from April 2025, which is a level that often delivers reversals. On the bull scenario the pattern on SOX is a large bull flag that would generally deliver a retest of the all time high (possibly then to make the second high of a double top), and Thursday’s low was a bullish underthrow signalling a low. That is backed up to a degree by the daily RSI 5 buy signal fixed on SOX.

On the bear side this flag breaks down, as they do about 30% of the time, with a tentative target at a further retracement into the 4500-4700 area, and the next obvious support in the 8500 area.

SOX daily chart:

A double top broke down on QQQ last week with a target in the 554 to 557 area. At this point we would generally either see that target area reached, or a rejection back into a retest of the all time high.

QQQ daily chart:

On DIA a decent quality possible H&S is forming, and on a break down below the H&S neckline, currently in the 502 area, the H&S target would be in the 466-7 area. That hasn’t broken down yet, but if and when it does, we would then generally either see that target area reached, or a rejection back into a retest of the all time high.

DIA daily chart:

On IWM a high quality possible H&S is forming, and on a break down below the H&S neckline, currently in the 270 area, the H&S target would be in the 233-4 area. That hasn’t broken down yet, but if and when it does, we would then generally either see that target area reached, or a rejection back into a retest of the all time high.

IWM daily chart:

US equity indices are still in this inflection point, but if we see a new rally high on SPX after today then I’ll be leaning towards at least a full retest of the daily middle band there.

Last week I promised a post on why I think it is very likely that there is a speculative bubble in AI here, and after giving that some thought I have split that into three posts, of which the first will be published tomorrow on my The Bigger Picture substack.

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.

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.