The Air Is Feeling Thick Here

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 they were hit this week.

In my last post on Friday 28th August before the Warsh Speech I was looking at three IHS patterns that had formed on the 15min charts on SPX, QQQ and DIA, and all three broke up on the Warsh speech before failing with targets at retests of their recent lows. The IHS patterns on SPX and QQQ failed on Friday, with DIA failing on Monday. At the same time an H&S broke down on IWM with a target in the 288.80 area.

That gave these four US equity indices downside targets as follows:

• SPX target at 7638.17 - TARGET REACHED

• QQQ target at 702.70 - current low 704.66

• DIA target at 526.76 - current low 526.84

• IWM target at 288.80 - current low 289.97

QQQ, DIA and IWM all came close to their targets this week but those targets were not quite reached. I would generally expect these targets to be hit so my working assumption is that those will be reached before this move completes.

In my (paying subscriber) premarket video this morning I was looking at the hourly buy signals fixed or brewing on ES, NQ, RTY, YM, DAX and ESTX50. These are generally a good indicator for a rally or full reversal and it is that rally that we have seen this morning. That may be topping out at the monthly pivot on ES at 7693, and the ES, RTY and YM hourly buy signals have now all reached their target or possible near miss target.

At this point I am wondering about a low retest that should hit the remaining downside targets and might set up possible double bottoms for a larger rally or full reversal.

Why am I thinking that the current retracement may well be bottoming out here? Well the downside targets I listed above are the only strong current downside targets I have on US equity indices. That is unusual if this retracement is going to get much further and has me wondering about high retests to set up the larger possible retracement patterns that I’m not seeing here yet, apart from a possible double top setup on IWM, and an existing but possibly failing diamond top on QQQ.

There is also this perfect bull flag channel on the SPX 15min chart below. If this channel holds, and there is a matching perfect bull flag channel on ES, then further downside is limited, and the bull flag will likely resolve in due course into a retest of the all time high at 7816.70.

SPX 15min chart:

On the bigger picture the SOX chart is still discouraging for bulls. The H&S on SOX is still intact and looking for 9150. That is a good indicator that it is reasonable to be looking for more downside soon, even if we reverse into high retests in the short term:

SPX reached the daily lower band and has so far formed a bull flag channel from the all time high.

SPX daily chart:

QQQ also reached the daily lower band and still has an overall diamond top target fixed at 642. A retest of the recent high at 734.58 from here could set up a smaller double top that would look for the 668 area. There is an argument that if that double top formed and broke down, and then the 642 target was reached, that might all be part of a larger bull flag forming on QQQ that would then look for an all time high retest.

QQQ daily chart:

DIA also reached the daily lower band and looks like a bull flag forming from the high so far. The bull flag quality would improve considerably with a retest of the 526.76 low and target, and in the short term a decent quality double bottom has formed that on a break up would look for a retest of the all time high:

DIA daily chart:

IWM was leading on the way down and looks somewhat different though this could still be a bull flag forming from the all time high. It wouldn’t be a decent quality flag though and a possible larger double top has already formed.

Against that IWM came very close to a test of the daily 3sd lower band yesterday and that tends to be a good place to see a multi-day rally.

IWM daily chart:

Ideally I would like to see a retest of yesterday’s low on SPX, QQQ, DIA and IWM and then a strong multi-day rally that may look for a retest of the all time highs on SPX, DIA and IWM before a larger pullback.

There is a possible news issue of course with the Iran War heating up as the US and Iran fight for control over the Strait of Hormuz. That has potential to get a lot worse very fast, particularly if Iran takes the obvious step of mounting a major attack on the Omani port of Fujairah, the linchpin of the US route through Hormuz and the primary transit point of the majority of the oil that is still being exported from the Persian Gulf. If that happens and serious damage is caused there, all upside bets on US equities may be off.

Iran issued a red line a few weeks ago where they said that if the US attacked Iranian power or oil infrastructure then they would widen their targets to any and all oil infrastructure in US allies in the Persian Gulf. The US attacked two power plants in Iran on Sunday and two Iranian tankers yesterday. We are still waiting to see if this escalation will elicit that response. If Iran do respond then the obvious target will be Fujairah.

My post on the bigger picture outlook for bonds was delayed but I’m expecting to publish that before the open tomorrow on my The Bigger Picture substack, so watch out for that. I’m planning another on oil in the next few days but am giving the current situation until the weekend to clarify.

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.

Waiting on the Jackson Hole Speech

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.

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 three weeks so far, the daily middle bands have turned up, and the outer bands expanded, but have since started to contract again.

Of those three topping patterns the high quality H&S on Nikkei has since failed with a target at a retest of the all time high but the but the topping patterns on SOX and QQQ remain intact. The H&S right shoulder high on SOX is at 13,249.07 and if that fails to hold as resistance the target would be an all time high retest, but so far that has not been in danger of failing, with a thorough backtest of the 50dma marking the high so far.

In my last post on Wednesday I was looking at the importance of the daily middle bands as trend support and since then we have seen good NVDA earnings on Wednesday night and a modest rally. We are still clearly in this inflection point though and it seems very possible we will see a break up or down on the Fed statement at Jackson Hole expected at 10am EST this morning.

In the meantime the Philadelphia Semiconductor Index (SOX) has rallied back to test daily middle band support from below. This is an index I am watching very carefully as, in the absence of a rejection higher, it is likely in the process of retracing 50% of the huge move up from the April 2025 low:

SOX daily chart:

IWM has also closed under the daily middle band every day this week including yesterday. There is currently no obvious reversal pattern setting up a retest of the all time high.

IWM daily chart:

Of the other indices SPX had a decent, though still modest, move up from the daily middle band yesterday, closing ~0.4% above it, QQQ and DAX did a bit better, closing ~0.7% above it, and both DIA and NIKK closed marginally above their daily middle bands. This is a promising start for possible high retests, but we are still clearly in the inflection point.

Are there any reversal patterns forming that might deliver those high retests? Yes. The best is on DIA, with a decent quality IHS formed that on a sustained break up would look for a retest of the all time high made in early August.

DIA 15min chart:

A possible IHS is forming on SPX and on a sustained break up would look for a retest of the all time high made in mid August.

SPX 15min chart:

A small IHS may be forming on QQQ as well, and on a sustained break up would look for a retest of the short term high made in mid August. That pattern wouldn’t be looking for a retest of the all time high, but wouldn’t need to go a lot further to deliver that.

QQQ 15min chart:

What are my expectations of the Jackson Hole Speech? Well any talk of a cut in the Fed Funds Rate seems unlikely, as there is still a lot of upwards pressure on prices, and the new trade war with Canada and talk of increased tariffs elsewhere will definitely not be helping with that. We should really see a rise in the Fed Funds Rate, but the consensus view seems to be that Warsh will try to delay further rises until after the midterm vote on November 3rd, by which time it is possible that inflationary pressures may have moderated. If we don’t see any shift in rates then the tone of the speech today will be watched carefully. We’ll see how that goes.

I am writing a big post on the outlook for bonds that I’m planning to publish later today or over the weekend on my The Bigger Picture substack, so watch out for that.

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.