In my post on 6th May I was looking at the resistance trendline on the SPX weekly chart and that rising trendline was being close to being hit in the 7385 to 7400 area. It was then hit and exceeded in what might have been a bearish overthrow, but I had by then also drawn in an alternate high quality resistance trendline that was hit perfectly at the high on Friday. SPX could go a bit higher, but the ideal upside trendline target has been hit. Look at the chart below and admire this beautiful rising megaphone from the 2022 low. :-)
SPX daily chart:
In my last post on Friday 14th May I was putting the case that further upside was likely to be limited, and a decent looking candidate high was made that day, with a modest decline into yesterday’s lows.
So what now?
Well, now I am looking for topping patterns, first some smaller ones for the next leg down, and after that some larger ones for the much larger retracement that I think will likely follow.
In terms of these first topping patterns I was hoping for high retests on SPX and QQQ, and we could still see those, with newsbomb potential here high with the Iran talks apparently in progress again, and NVDA earnings out after the close tonight.
I remain doubtful that there are any serious talks with Iran happening, as it is clear that previous talks were mostly imaginary, and as it is already clear that the resumption of US attacks planned for yesterday were delayed, not by talks, but by an ultimatum to the US from Gulf States that unless they first consented, any further attacks on Iran would have to be done without any support from Gulf States or US bases on their territory. Subject to that though, there are four high quality H&S patterns forming on SPX, QQQ, DIA and IWM, and they are as follows.
On SPX there is a high quality H&S forming, the ideal right shoulder high area has been reached today, and on a sustained break below 7330 would look for a target in the 7140 area.
SPX 15min chart:
On QQQ there is also a high quality H&S forming, the ideal right shoulder high area has been reached today, and on a sustained break below 694 would look for a target in the 688 area.
QQQ 15min chart:
On DIA there is also a high quality H&S forming, though in this case it can also be read as a double top that has already broken down. On a sustained break below 492 the double top target would be in the 483 area.
Read as an H&S, the ideal right shoulder high area has been reached today, and on a sustained break below 692 would look for a target in the 687 area.
DIA 15min chart:
On IWM there is also a high quality H&S forming, the ideal right shoulder high area has been reached today, and on a sustained break below 271 would look for a target in the 254 area.
IWM 15min chart:
Will these patterns play out? Well there are fixed daily sell signals on all four of these indices and the newsbomb part of the day may be over, with CL already having dropped $8.50 from the last highs on the news that the talks with Iran were ‘in the final stages’. As ever the first part of that decline happened before the news so we can at least be confident that US Administration insiders had a solid trading day.
As for NVDA? Well a classic move at or near the end of a big bull run would be to get good news that the market responded to by dropping. Well see how that goes tonight.
If markets rally much further I’d be looking for all time high retests on SPX and QQQ, and we might then see the all time high retest on DIA that I was looking for last week and didn’t see.
Either way further upside looks limited, and at most I think that this bull run from the late February low is likely to be over by the end of May.
After this equities high is made I think the months after that high lean strongly bullish for oil, food and inflation, and bearish for equities and US treasuries.
In my post on 30th April I made some predictions for oil, equity and bond markets over the rest of this year. Nothing has happened since to change this longer term view though it might take an extra month for US inflation to reach 5%.
Oil - I think it is now very likely that Brent Crude and West Texas Intermediate Crude will hit new all time highs over $150 within weeks, and that we may well see prices in the $200 to $250 range within months. Gas at the US pump will likely rise into the $6 to $9 range and oil will likely be over $100 on a monthly average basis for the rest of this year.
Bonds - US Inflation will likely go back over 5% within two months and may go over 7% by the end of the year. Ten year and thirty year Treasury yields will likely go over a key psychological level at 6% over the summer and may reach 9% before the next big high on yields is made.
Equities - Looking at SPX I’ll be looking for at least a decline into the rising support trendline from the October 2022 low, currently in the 5400 area. On a break below I would be looking for a retest of the April 2025 low at 4835.04.
Obviously this is a bearish take, but I have not felt this bearish about equities since summer 2008 and February 2020. There is good reason to be bearish here.
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