The Low Before The High

In my post on Monday 10th Feb I was looking at the bull flag setups on SPX and QQQ and the historically bullish lean through Tuesday 18th Feb and was projecting that we might well see retests of the all time highs on SPX and QQQ in that bullish window. We saw those all time high retests on QQQ on Friday 14th Feb and on SPX on Tuesday 18th Feb.

In my post on Wednesday 19th Feb I was looking at the very nice looking topping setups on SPX, QQQ and DIA and the historically bearish lean through Friday 28th Feb and suggesting that, if these patterns were going to deliver, then this bearish window would be a good time to get started on that.

Obviously that bearish window has delivered hard, and today is the last day in that bearish window, with the historical stats for today closing green 28.6% of the time.

One thing I’ve mentioned regularly below over the years is that we often see, at a serious high, a spike down that is then recovered before the real move begins. This happens a lot, and I’ve been weighing the possibility that we might see that here. In a forming high I call this making the low before the (main) high. These also happen at big lows and there I call this making the high before the low.

If we are going to see that happen, there is a decent case that the obvious place to see that reversal back up would be in this area.

On the daily chart SPX hit the rising support trendline from the last 2023 low at the low yesterday. That is a big support level, hit at the lowest daily RSI 5 level seen in the last two years.

SPX daily chart:

On the SPX hourly chart the smaller of the two nested double tops that I’ve been watching has broken down with a target in the 5695 to 5710 range, with the larger double top support at 5773.31. That is the downside scenario here of course.

In the short term though, there is a possible decent quality falling wedge that has formed from the high, and a possible hourly RSI 14 buy signal is brewing. A reversal higher today could break up from that falling wedge, fix that signal, and set a strong rally rolling.

If we do see that, I’d be watching the weekly middle band, currently in the 5962 area, as a close today near or above that would avoid a closing break below that key support level.

SPX 60min chart:

There is also a possible hourly RSI 14 buy signal brewing here on QQQ, as QQQ starts a a test of the key 500 level. A sustained break below 499.70 fixes a double top target in the 458-61 area but this is a big support level and we could see a decent rally start here.

If we do see that, I’d be watching the weekly middle band, currently in the 514 area, as a close today near or above that would avoid a closing break below that key support level.

QQQ 60min chart:

On DIA a weak hourly RSI 14 buy signal has already fixed, and a high quality bull flag megaphone has formed. If that breaks down then DIA can continue down towards double top support at 417.73, but until then the megaphone is suggesting that we could see another retest of the all time high next.

DIA 60min chart:

The H&S that have been looking at on IWM has now broken down with a target in the 183 area. There’s not much in terms of positive divergence or reversal setups to see on IWM here, but whenever a reversal pattern like this breaks down there is an opportunity either to reject back up into the high, or to continue down towards the target, and that generally happens not long after the break.

IWM daily chart:

I think a significant high has been forming here, and that topping process may well be complete, but if there is a last high to be be made in this process, then this would be an obvious place to see that. We’ll see how that goes.

As I have been since the start of 2025 I’m still leaning on the bigger picture towards a weak first half of 2025 and new all time highs later in the year, very possibly as a topping process for a much more significant high. One way or another I think we’ll be seeing lower soon and I’m not expecting this to be a good year for US equities, not least because both of the last two years have been banner years for US equities. A third straight year of these kinds of gains looks like a big stretch. I could of course however be mistaken. Everyone have a great weekend. :-)

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