Good morning, everyone, and welcome to Friday. It’s been quite a good week, and even though during the composition of this post, the equity futures have all flipped from red to green, I’m still optimistic about being pessimistic. I wanted to thumb through four index charts of notes to get the day started as we wrap up this shortened trading week.
First up is the NASDAQ Composite, whose most germane feature is the Fibonacci line. The atrocious mega-rally that began in mid-March and, thank God, terminated at the end of July, send the COMPQ flying toward this line, only to be repelled. My view is that this level, which is roughly equal to the peaks in early 2022, is going to be the high water mark for months to come.
You may recall my obsession with what I called “The Face-Off” over the past two years. In case after case, we had a large bearish setup (in pink) and large bullish setup (in green). I’m relieved to note that the bullish case did NOT complete, and in fact prices have withered right back into the green zone. In other words, this is an aborted launch, and I think bears can breathe easy once more, relatively speaking. The US Financials, shown here, have absolutely crumbled to pieces, and the efficacy of Yellen’s BTFP is already eroding badly.
A similar faceoff, but one which did indeed show strength, is seen here with the Large Caps. In this instance, the bull base completed, and prices shot higher. However, August saw this momentum cease abruptly, and the next big text is to see whether prices penetrate back into the green zone. If they do, it affirms the same spoiled opportunity for the bulls.
Perhaps most interesting is the semiconductor index. The SOX has been the bulward of NASDAQ Strength for nearly an entire year. This chart shows three clear patterns: first is the bearish top, on the left side of the chart, second is the even larger bullish base, and third, most recently, is the topping pattern in formation.
If this topping pattern completes – – that is, if the SOX slips under 3400 – – that should ring alarm bells like mad that stocks, and tech stocks in particular, are in serious trouble indeed.
