“One day all the rules will bend and you and I will meet again.” You and I Will Meet Again, Tom Petty
Markets reversed sharply on Monday…most of the give-back after Friday’s dramatic rally was in the last hour when the SPX triggered a Late Day ORB
The surge had been fueled by short covering associated with the largest options expiration on record.
Importantly even as the DJIA posted its strongest day in months on Friday, the rally went unconfirmed by the Transports and was undercut by weak market internals across breadth, volume and leadership.
Monday’s action drove those warning signals home. The DJIA dropped 350 points, the SPX fell 28 and the NAZ lost 47.
Losses were broad-based and the internal measures that failed to support Friday’s spike remain in negative territory.
The contrast between Friday’s expiration-driven surge and Monday’s broad reversal underscores that underlying conditions remain suspect.
That said, today will be interesting.
The SPX could have traced out a Jack in the Box buy setup.
Basically this is a pullback day that closes near session lows following a surge to highs the previous session.
The potential is that this coils the market after a surge setting up a possible continuation to the topside.
So it will be interesting to see if the SPX can capitalize on this compression.
Where are we in the big picture.
History has a way of rhyming, in and out of the stock market.
Past bull market darlings have ultimately become the very leaders of the decline that follows.
In the early 1970’s the so-called Nifty Fifty stocks—companies like IBM, McDonald’s, Xerox, Eastman Kodak, and Polaroid—were branded as “one-decision” investments: buy and hold forever. They powered the market higher in 1971 and 1972, only to reverse course in 1973. As they broke down, they dragged the broader market with them, fueling an SPX decline of more than 50%.
A generation later, in 1998-1999, it was the internet darlings—Amazon, eBay, and a wave of dot-come hopefuls—that wore the mantle of “Must-Own” stocks.
Many of those names, like Polaroid and Xerox before them, ultimately faded into irrelevance or collapsed entirely. When the bubble burst, the SPX lost over 60% in the 2000-2002 bear market.
Today’s generation has “discovered” the one-decision phenomenon all over again. The new buy and hold forever stocks are the Magnificent Seven—along with dozens of related companies orbiting their dominance,
They have driven the market to magnificent new highs in the 2020’s, but history suggest they will also lead the way down as this cycle ends—and that process may already be underway.
For example MSFT hasn’t seen a new high since its July 31st large range Gilligan sell signal and closed below it 50 DMA on Monday.
META hasn’t seen a new high since its signal bar reversal on August 15 and is flirting with its 50 DMA.
GOOG acts well coming out of a Cup and Handle.
AMZN hasn’t seen a new high since it’s Soup Nazi sell signal on July 31st. it’s trapped in a triangle.
AAPL hasn’t seen a new high since late December 2024. It may be working on a big picture right shoulder.
TSLA hasn’t scored a new high since December 2024.
NVDA while flirting with new highs going into earnings may carve out a Megaphone Top after reporting.
The August 19th failure below the prior July 31st key high (as in Key Reversal) offered a preview of this generations version of that same story approaching its endgame.
The Mag 7 were the clear downside leaders, declining in lockstep with NVDA, the poster child of this era’s speculation.
NVDA rallied on Monday despite a crimson tape.
Even the late day swoon did not throw NVDA off its perch.
Monday NVDA turned its 3 Day Chart back up in front of Wednesday’s earnings after the bell.
An hourly shows NVDA tried to breakout on Monday but was rejected for the moment.
NVDA bounced on the runoff after testing close to its 20/50 hourly Bowtie.
An hourly 3 point trend line to the 175 strike would play out should NVDA snap the Bowtie.
While NVDA put on a good show yesterday it needs to hold above its 20 DMA.
A failure to break out of its triangle likely sends it below the bottom of the triangle which will be around 177 on Wednesday.
I think caution is warranted if NVDA spikes to a new high on earnings.
Why?
A new high satisfies a possible Megaphone Top
A reversal back below the triangle following its “breakout”
Will also trigger a Triangle Pendulum sell signal.
NVDA has beaucoup resistance if it spikes to a new high at 187.
Why?
The April closing low is 94.
720 degrees up is 187 which as offered would satisfy a Megaphone Top
Breakage below the bottom of NVDA’s current triangle could occur at 177 triggering a Triangle Pendulum sell signal…with the 50 DMA looming large below at the 168 region.
Considering NVDA hasn’t tested its 50 DMA since recapturing it in mid-May, caution is warranted.
In sum, if the SPX pulls back to the 6420 region (where it was before Jackson Hole) which ties to the 50 hour ma and a rally shows up a Measured Move projects to around 6540.
Another “9 number”.