It should prove difficult for markets to make much headway this week, and reversals of trend are likely which should get underway between Tuesday and Wednesday’s CPI data being released. Monday’s stalling out is happening at a key area of intermediate-term trendline resistance for $QQQ that lines up right near early June highs for $SPX. As discussed last week, while the 6-8 week trend remains positive, it should be difficult for this to extend further following a near 15% runup in the last seven weeks up to key resistance. Following a 3-5% selloff over the next week, I anticipate further strength in the back half of August. Five reasons suggest Equity markets might reverse course this week: 1) Counter-trend exhaustion per DeMark indicators 2) Cycles 3) Defensive trading during Monday’s session 4) Wave structure 5) Structural resistance.
Small-caps breakout vs. Large-Caps likely shows outperformance into September
Interestingly enough, the last month has produced a technically significant move in the Small-caps, and this uptick in relative strength likely helps this group outperform and continue higher over the next few months.
Daily ratio charts of $IWM vs $SPY show the relative charts of how Small-caps have achieved a minor breakout of the consolidation that’s taken place since the beginning of the year. This recent ability to have exceeded this trendline resistance is thought to be positive for Small-caps to outperform in greater fashion in the months to come.
As this chart below shows, this intermediate-term trendline marked the highs of this downtrend going back since March 2021. The breakout looks meaningful and constructive towards expecting continued outperformance.
Historically, the breaking of these prior red trendlines which connected relative lows vs $SPX were important in illustrating how trends were changing in the relative strength of $IWM vs $SPX. While those former breakdowns proved negative, I now suspect this upside breakout in the last week should fuel further outperformance in $IWM vs. $SPX.
Five-wave Advance for $SOX, $NVDA into resistance should require consolidation into next week
Monday’s gap-down in $NVDA caused some early weakness in Technology at a time when most Defensive issues were gaining ground on the early $SPX rally. Semiconductor stocks in general were largely lower, offsetting some of the gains in Tech Hardware and Software.
Wave structure in $NVDA shown below looks similar to what the $SOX is depicting, a likely five-wave impulsive advance into last week’s highs. That’s a constructive sign for gains in the months to come.
However, in the short run, these gains have resulted in prices getting right up to structural resistance near early June highs. Moreover, five-wave advances mark the completion of a certain move, and it’s not a great risk/reward spot to expect more upside. Overall, one can see 50-62% of this recent rally being given back ahead of the start of another push higher.
In NVDA’s case, pullbacks down to $166.60 looks likely and potentially under to near $160 before this stabilizes and turns back higher.
Ideally, a pullback would occur in three separate waves, and would give confidence towards thinking a good tradable low in $NVDA should be in place potentially by next week on this weakness. At present, more downside looks likely.
Bitcoin rally should face initial resistance near $25k
Bitcoin’s push to new multi-day highs likely helps the near-term trend extend a bit more ahead of possible late week consolidation. Daily charts show the recent consolidation into early August having held exactly where it needed to at one-month uptrend line support.
Monday’s surge echoes what’s being seen in Equities yet is nearing an area of important short-term overhead resistance near the edge of this Ichimoku Cloud. Technically, it’s likely that $25k might hold on this initial run-up given this Cloud resistance as this also lines up with a meaningful 50% retracement level of the entire May-June decline.
Following consolidation into next week, it’s likely that $BTCUSD extends its rise up to more meaningful resistance targets near $28k. Overall, near-term trends are bullish as part of an intermediate-term pattern that’s also improving. Yet, the short-term upside follow-through might prove muted until consolidation occurs, and it’s thought that $25k is the first meaningful roadblock to this current trend.