Key Takeaways
  •  SPX and  QQQ -0.21%  both showing signs of stalling out after this run-up.
  • Small-caps have begun to outperform Large-Caps, a trend which should persist.
  • Defensive trading looks important to kick off the week as breadth starts to wane.
Upside should prove difficult this week as prices stall

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 -0.21%  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. 

Upside should prove difficult this week as prices stall
Source: Trading View

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 0.34%  vs  SPY 0.02%  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 0.34%  vs  SPX.  While those former breakdowns proved negative, I now suspect this upside breakout in the last week should fuel further outperformance in  IWM 0.34%  vs.  SPX.

Upside should prove difficult this week as prices stall
Source:  Optuma

Five-wave Advance for  SOX,  NVDA -0.13%  into resistance should require consolidation into next week  

Monday’s gap-down in  NVDA -0.13%  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 -0.13%  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 -0.13%  should be in place potentially by next week on this weakness.  At present, more downside looks likely.

Upside should prove difficult this week as prices stall
Source:  Trading View

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.

Upside should prove difficult this week as prices stall
Source: Optuma
Disclosures (show)

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