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.
So here we are, with that bearish window ending at the close tomorrow, with the stats for tomorrow leaning strongly bearish on SPX at 28.6% green closes historically.
Obviously there are large and high quality topping patterns on SPX, QQQ, DIA and to a lesser extent on IWM, and if these are to play out, as I think they may, then this decline has just been getting started. So let’s review the action so far.
On the daily charts this has been a strong decline, with DIA and IWM hitting the daily 3sd lower bands late last week and SPX touching the daily 3sd lower band on Tuesday. NDX has been the strongest but has reached the standard daily lower band.
The touch of the 3sd daily lower band on SPX generally triggers a decent rally, with the obvious target for that at the daily middle band, currently at 6049. We may see that next week, subject to news bombs and the reaction to the implementation of further tariffs on China, and initial tariffs on Canada and Mexico, all currently expected to be implemented on Tuesday 4th March. Conversion of the daily middle bands to resistance, particularly on SPX and QQQ/NDX would open up further downside.
SPX daily BBs chart:
The weekly middle bands are a further very key level that bears need to break (weekly close basis) and convert to resistance, and if we see a weak close tomorrow then we could see a clear closing break below the weekly middle band, currently at 5966. If seen, that break would need to be confirmed with another close below it next week, and if instead we were to see a strong rejection then that would lean towards another retest of the all time high.
SPX weekly BBs chart:
The NDX weekly chart looks similar, and a weak close tomorrow would likely deliver a closing break below the weekly middle band on NDX, currently at 21,157.80. There is another big support level that I’m watching, possibly an important target here, and that is rising wedge support from the late 2022 low, currently in the 20,725 area.
NDX weekly chart:
In the short term I’d note that QQQ has a possible hourly RSI 14 buy signal brewing, and that main double top support is not far below at 499.70.
QQQ 60min chart:
On DIA a weak hourly RSI 14 buy signal has already fixed and a high quality support trendline has been established that could be the support trendline on a high quality bull flag megaphone that could be signalling a return to retest the all time high next.
DIA 60min chart:
On the bigger picture there are now therefore high quality topping patterns across the board on SPX, QQQ, DIA and IWM. In fact I can’t remember seeing all four of these have topping patterns of this high quality in the last twenty years.
Are we going to see these topping setups deliver? Very possibly I think. Trump and his administration are disruptors and will likely be shaking a lot of trees this year. They have already made a very strong start on that and look set to continue. Many of those trees likely need a good shake, but disruption delivers uncertainty and markets tend to not like uncertainty.
Depending on what is next we could well see significant spikes in inflation (tariffs), unemployment (federal government layoffs) and interest rates (inflation) in coming months and in my view the chances of seeing significant bond market disruption (planned tax cuts) this year are high and the odds of seeing a recession (unemployment & interest rates) start this year are far from insignificant. Trump was saying that there might well be some pain this year and I entirely agree. Some of that pain may well feed through into equity markets sooner rather than later.
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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