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.

The Elephant In The Room

In my post on Monday I stated that any move to retest the highs would require the participation of Tech and said I’d do a dedicated post yesterday to explain why that is very likely the case. That has slipped a few trading hours into this morning.

The chart below you’ve already seen if you read my post on Monday, and that is the SPX daily chart, showing a new all time high at the start of October, and then a bumpy retracement since then.

SPX daily chart:

The chart below is very different, on this chart there was a significant swing low at the start of October, and a strong uptrend for the rest of the month, with the index staying close to the daily upper band for most of the rest of the month and the latest high on this move yesterday.

The chart below is $SPXEW, the version of SPX that includes all the same companies, but with them all having equal weight rather than being weighted by market cap. The difference is stark, and that difference is the relatively modest in number but very heavily weighted Tech component in SPX.

According to quant500.com as of Monday there were 86 Tech companies in SPX, accounting for 36.2% of the index by market cap, though it seems likely that the weight in the index was in the 40% to 45% range before recent declines, given that QQQ is down over 10% since the ATH at the start of October, and SOX is down about 30% since the ATH in June.

Either way it seems that over 80% of SPX companies were in an overall strong uptrend since the start of October, but the downtrend in Tech was enough to drag the whole index into a significant downtrend for the month.

SPXEW daily chart:

DIA has a Tech component too, with six Tech companies out of the total of 30, weighted today at 18.6% of the index by market cap. That too made a significant low at the start of October and was in a strong uptrend over most of October, but was dragged down towards the end as GOOG fell 20%, CSCO fell 15%, AAPL, AMZN & NVDA dropped 10% and MSFT dropped 6%. That was enough to drag the whole of the Dow 30 down over 3% over the last ten days of October against the 2% or so the overall index actually dropped over the period. Excluding Tech, DIA was also in a strong uptrend through October.

DIA daily chart:

Tech is the elephant in this index room, and if Tech hadn’t dropped hard from the high at the start of October, both SPX and DIA would have had a strongly bullish month. That is the reason that I said that if we are going to see US indices follow the rest of the historical stats up into the end of the year, Tech will have to lead or at least join that move.

How likely is that? Well there are some signs that Tech could turn back up here.

On QQQ a daily RSI 5 buy signal fixed last week and these historically perform well. As I write a possible hourly RSI 14 is brewing and, if it fixes, those also tend to perform well. QQQ was testing the 200dma at the lows so far this week and that is an important level that often holds as support or resistance.

QQQ daily chart:

There is also a daily RSI 5 buy signal fixed on the Philadelphia Semiconductor Index (SOX), though as with the one on QQQ the index has fallen significantly since that buy signal fixed. There is also an hourly RSI 14 buy signal that fixed yesterday. SOX has now fallen an eye-watering 30% or so high to low since the high in June and is still testing a decent support level between 10,000 and 10,500.

There was an H&S that had broken down on SOX with a target in the 9150 area that I posted a few times in December and that failed at the start of October with a target at a retest of the all time high. That target isn’t always made but usually delivers.

If it is going to deliver here then the current pattern forming from the June high would likely be a bull flag and I have drawn in a couple of flag support trendline options. Neither of those has been reached yet but the lower low below the July low at 10,445.44 on Monday is encouraging for this being a bull flag. If it is a bull flag I would expect the next significant low soon. If it isn’t a bull flag then I’d note that I see almost no support between 10,000 down to 8,500.

SOX daily chart:

There is a lot of talk here that Tech is in an AI bubble, which I agree with, and that the AI bubble has now popped, which I am doubtful about, but could be the case. If the AI bubble has popped then the aftermath could easily drag SPX down 50% all time high high to low as the air comes out of the bubble.

As for the bubble I’m planning another post this week explaining why I believe that AI is a speculative bubble, though that post might get bumped into next week if the rest of the week on SPX is particularly interesting.

In terms of whether that AI bubble has popped I’m keeping an open mind, though I’d note that while identifying likely bubbles is fairly easy, identifying when that bubble is bursting is notoriously hard. The patterns on the individual Tech AI players don’t look that encouraging as yet, and the topping process can take a few months to a couple of years. We’ll see.

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.

Four and a Half Horsemen

It has been a few weeks since my last post on 25th September, due to holiday, illness and other reasons. I was looking then for an all time high retest on SPX to make the second high on a large double top, and we saw that all time high retest in early October. For the rest of October SPX trended down into a low on Friday.

In the short term SPX touched and broke slightly below the daily 3sd lower band at Friday’s low, and as is generally the case when the SPX gets close to or hits the daily 3sd lower band, that has triggered a strong rally.

By my count SPX has tested or come very close to a test of the daily 3sd lower band thirteen times in the last eighteen months (before Friday) on the chart below, all marked with yellow highlights, and the results were 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.

• 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.

SPX daily chart:

In terms of heading to an new all time high the historical stats from the end of October into the end of the year are strongly bullish in a normal year, and even stronger in a midterm year.

That’s just a historical average of course, and doesn’t deliver every year. We do also have a lot of news coming up this week that may move the markets.

There will likely be no all time high retest on SPX unless Tech & AI rally with it. I’ll be doing a dedicated post tomorrow looking at that but I’m watching the sector carefully and one risk this week is that if the Democrats take back both House and Senate, that may well be perceived as bad for AI.

There is also a lot of talk that the US and Iran will resume bombing Iran after the midterms end, very possibly on Wednesday, and if that happens then that may quickly escalate into major infrastructure damage across the US allies in the Persian Gulf. That could deliver a big decline on equities into the end of the year.

So what is the pattern setup like for continuation down? Well it’s pretty decent actually, and there are four (and a half) big patterns that I will be watching if we see more downside.

The first is the double top on SPX. We saw in early October the high retest I was looking for in my last post on 25th September, and that has set up a high quality possible double top. A sustained break below double top support at 7507.77 would look for a target in the 7160 to 7190 range.

SPX 60min chart:

The second is the double top on QQQ. We saw in late September and early October the all time high retests I had been looking for in September, and that has set up a decent quality possible asymmetric double top. A sustained break below double top support at 660.45 would look for a target in the 554.41 to 571 range.

QQQ 60min chart:

The third is the mostly formed H&S on DIA. I mentioned in my last post on 25th September that an H&S right shoulder might form, and so far we have seen that. There is now a decent quality possible H&S mostly formed on DIA. A sustained break below the neckline currently in the 507 would look for a target in the 463 area.

DIA 60min chart:

The fourth is the mostly formed H&S on IWM. I mentioned in my last post on 25th September that an H&S right shoulder might form, and so far we have seen that. There is now a very high quality possible H&S mostly formed on IWM. A sustained break below the neckline currently in the 269.50 area would look for retest of the April low at 237.50.

IWM 60min chart:

The half is the H&S set up on SPCX that I’ve been following since Starlink services in Ukraine were restricted three weeks ago, as I’ve been interested to see what the effect would be on the international reputation of Starlink, which is expected to be an important profit centre for SPCX in the future. That reaction has been mainly negative, with concrete plans made now by Europe and Canada to build their own alternative, and a general perception elsewhere that depending on Starlink for an essential services would be a mistake.

It may be for unrelated reasons but a decent quality H&S has formed on SPCX and broke down on Friday with a target at a retest of the August low.

SPCX daily chart:

I take historical stats seriously as they often deliver, and they most definitely point up from here into the end of the year. I’m also skeptical that the AI bubble is bursting now, rather than starting a topping process that might take another year or so to complete.

On the other hand I was saying in multiple posts in September that there wasn’t a good topping setup then for all these US indices to go down much further, and that is clearly no longer the case. We will see how this plays out.

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.

One More Heave

In my last post on Monday 14th September and my previous posts on Friday 4th September and Wednesday 2nd September I was looking at the case that the retracement since the start of August has been a bullish consolidation that would likely be followed by retests of the all time highs on some or all of SPX, QQQ, DIA and IWM.

Since then we have seen a strong rally on Tech on Friday and Monday that delivered an all time high retest on QQQ but so far has failed to deliver a corresponding all time high retest on SPX.

I have been saying all along that what happened on the Philadelphia Semiconductor Index (SOX) was likely to be key, as high retests were only likely if Tech led the retests. On Friday last week SOX finally closed over the 50dma and declining resistance from the high and that delivered the retest of the all time high on QQQ earlier this week.

That was the first of two big levels on SOX of course, the second higher level would be a break over the H&S right shoulder high on SOX at 13,249.07, and a break over that level would fail that H&S and open a target at a retest of the all time high there. Until we see that failure this move on SOX will continue to look like a bear flag forming from the July low.

SOX daily chart:

On QQQ the high retest failed the diamond top that broke down in July and has set up a beautiful possible double top with support at the July low at 660.45. On a sustained break below that level the double top target would be in the 582-3 area, close to a 50% retracement of the move up from the low in April 2025.

QQQ daily chart:

The rally into that new all time high on QQQ was effectively all Tech, but SPX rose strongly as well due to the high Tech proportion of SPX. The rally peaked 34 handles below the all time high, but unless a larger bull flag is forming, that leaves a retest of the all time high as unfinished business. I am looking for that all time high retest in the next few days.

If seen that would set up another possible double top, with support at the September low at 7507.77, and on a subsequent sustained break below that level the double top target would be in the 7200 area, close to both rising support from the April 2025 low now in the 7080 area, and the possible asymmetric double top support or H&S neckline in the 7220 area.

SPX daily chart:

IWM and DIA didn’t meaningfully participate in Monday’s rally, and made new lows for September yesterday but on IWM a double top has already formed and broken down with a target in the 270.48 to 271.94 range, close to a larger possible H&S neckline in the 269 area. If SPX retests the all time high and fails there then that double top might just play out after that.

There is a possible alternate scenario here where a rally might set up the right shoulder on a larger H&S with the ideal right shoulder high in the 291-2 area. An all time high retest does not look likely unless the next move up is much broader based than the last one.

IWM daily chart:

So if SPX retests the all time high, that sets up a possible double top to join the one set up on QQQ earlier this week. IWM already has a decent double top setup that has broken down. That leaves DIA and there I’m watching a possible H&S forming, which would have an ideal right shoulder high in the 530-1 area. After yesterday’s retest of the September low there is a possible small double bottom setup there that on a sustained break over 522.85 would have a target in the 534-5 area.

An all time high retest again does not look likely unless the next move up is much broader based than the last one.

DIA daily chart:

One key reason why I have been seeing the retracement of the last few weeks as a likely bullish consolidation is that there was no decent topping setup on two of these four US indices. If this plays out the way I expect over the next few days then there is a good chance that we will then have decent topping setups on all four. At that point we will have an inflection point from where we could see a much larger retracement on equity indices.

Whether we see that larger retracement would depend on a multitude of factors like the Iran War, crude oil shortages, diesel and gas prices, bond yields, trade conflicts and so on, but for me I’ll primarily be watching to see whether the H&S right shoulder on SOX is broken. If another big leg up on Tech is starting, that would be the main reason in my view to be bullish on equities here. In the absence of that I’d be leaning towards seeing that larger retracement.

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.

Strong Headwinds

In my last post on Friday 4th September and my previous post on Wednesday 2nd September I was looking at the case that the current retracement has been a bullish consolidation that would likely be followed by retests of the all time highs on some or all of SPX, QQQ, DIA and IWM.

To a significant degree I’m looking for high retests for purely technical reasons, because there isn’t much here in the way of topping patterns that have formed, so I’d like to see some high retests to set up double tops, but there are also H&S options that might form after a significant further decline from here.

In terms of the technical setup for high retests from here the setups are decent, but the main problem has been the steady stream of bad news, which got a lot worse last week. That is increasing the possibility that we might see a break down directly from here.

So what’s the bad news? Well the first part is the worsening inflation picture, mainly due to the Iran War. The Producer Price Index inflation numbers last week were bad, and the CPI numbers this week will most likely be bad too. The odds I’m seeing for a rate rise of 0.25% at FOMC on Wednesday are currently at 86% on Kalshi. 30 year treasury yields have now risen from a low at 39.06 (3.906%) in September 2024 to a high so far this month at 54.24 (5.424%), while over the same period the Fed Funds rate has been cut by 1.25%.

The other bad news was from the Iran War, where the Strait of Hormuz has been relatively quiet, but the civil war in Yemen has started moving very fast. Last week the Houthi rebels took the entire Yemen Red Sea coastline from the Saudi-backed government forces, capturing a fortune in weapons and war materiel and taking full control of the Bab al-Mandeb Strait, which is the main way the Saudis have been bypassing the Strait of Hormuz to export their oil.

Just to make the Saudi exclusion from the Red Sea all the more complete their seven million bpd East-West oil pipeline to the Red Sea was bombed last week and badly damaged. It has closed down for at least a month. Saudi oil exports have likely now been cut by at least four million bpd which will exacerbate existing shortfalls which, as you can see from this statement from Chevron CEO Mike Wirth that I saw tonight, were already very serious:

It looks possible that the Houthis may control the rest of Sudan within days which would be a further big victory for Iran-aligned forces in the Middle East, and may well result in further damage to Saudi oil facilities.

All that said I still have a couple of very nice looking bull flags, which haven’t failed down yet. The first is on SPX with a very decent looking falling megaphone bear flag.

SPX 15min chart:

The bull flag on DIA is even nicer, with a perfect bull flag channel.

DIA 15min chart:

There may also be a bull flag forming here on IWM, though more obvious is the large double top that has broken down with a target in the 270.48 to 271.94 range.

That is not necessarily bearish of course. Any pattern like this breaking up or down has in effect two targets, either the pattern target here in the 270.48 to 271.94 range, or rejection back into a retest of the high, which is of course what a bull flag target would also be.

IWM 15min chart:

The key may well be the Philadelphia Semiconductor Index (SOX), which was encouragingly strong with QQQ last week against SPX and DIA, with breaks and closes over the daily middle band combined with tests of main resistance at the 50dma on Tuesday, Wednesday and Friday last week. None of those 50dma tests delivered a break above though, and SOX was back retesting the daily lower band today.

SOX daily chart:

I’ve been saying repeatedly that high retests would be a lot easier with a push up on Tech, and I’m thinking that in the absence of any actual good news we may well only see those high retests if SOX can break up.

On the hourly chart below you can see that as well as very clear resistance at the 50dma SOX has now also developed a very strong five touch resistance trendline from the all time high at 14655.29. If SOX can break that trendline then we may finally see that break over the 50dma and have a decent shot at multiple all time high retests.

SOX 60min chart:

If we don’t see a break up soon though, we’ll likely see a break down instead.

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.

Well That Escalated Quickly

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 the lower bands were hit again this week.

In my last post on Wednesday I was looking at the case for making a short term low and perhaps retesting some all time highs. I was looking for a rally, then a low retest, and then ideally retesting the all time high in a three day strongly bullish leaning series of days Wednesday to Friday next week.

So far that has been going faster than I expected and the odds of a low retest have dropped. On the SPX the very nice bull flag channel I was looking at on Wednesday SPX returned to flag resistance and broke it slightly at yesterday’s high. That’s not encouraging for a low retest and and is suggesting a strong break up towards a retest of the all time high in the near future.

SPX 15min chart:

On the daily chart SPX broke back with conviction over the daily middle band yesterday. This might fail, and if it is going to fail that would likely be today or perhaps Tuesday. Another close above today would confirm the break.

SPX daily chart:

On the daily chart DIA broke back with conviction over the daily middle band yesterday. This might fail, and if it is going to fail that would likely be today or Tuesday. Another close above today would confirm the break.

SPX and DIA were the star performers yesterday and QQQ was significantly weaker, though it did manage to close at resistance on the daily middle band. Considered with the breaks above on SPX and DIA, the odds are decent that we will see a break back above soon.

QQQ daily chart:

Bringing up the rear on the US indices was IWM, struggling to rally and not managing to get anywhere close to a daily middle band retest. This is the US index traditionally most affected by rising interest rates of course and led the way down on this retracement.

IWM daily chart:

Lastly on the Philadelphia Semiconductors Index (SOX) there has barely been a rally, underlying the the weakness in Tech here and with a strong H&S target in the 9150 area still open.

SOX daily chart:

If we are going to see some high retests and then a larger retrace as the SOX chart is suggesting, then I’d note that we already have decent topping patterns that have already broken down on QQQ and SOX, and that a good quality double top has already formed on IWM. The two indices that look most in need of high retests to set up topping patterns are SPX and DIA, which are the two indices that look most likely to see those all time high retests next week. This may be a solid overall topping setup forming.

In the short term the historical stats lean neutral today and Tuesday, and then significantly bullish Wednesday through Friday next week. That would be an ideal window to see those high retests. The odds to retesting this week’s low directly don’t look great, though we may see some retracement today before likely heading to those high retests.

What could change that outlook? Hard breaks back below the daily middle bands today on SPX and DIA. Everyone have a great weekend. :-)

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