NDX/SPY Continues to look like a bull trap
Updated
I have been watching this formation develop for what feels like a year now and it is slowly grinding its way through and it seems we are finally on the verge of having the performance begin
Generally speaking, since the dotcom crash NDX has gone up faster than SPY and so that has made it the bet for people to "just by the index" to make their gains. But now with this long term pattern forming it is signaling that NDX isn't the main bet to make. There are two main propositions from this formation: either SPY will start to outperform NDX to the upside or given the situation of the broader markets, NDX is going to lead the charge downward in a recession. Given how much negativity we see in the system combined with the topping pattern I think it will be the downside.
If you compare the NDX/SPY chart to NDX you can see that these top formations on the pair do predict a dip on NDX. So far these dips on NDX have been great buying opportunities because they have been higher lows. Eventually NDX is going to print a lower low. After that lower low we are at risk for a lower high and that sets the bearish trend.
Imbedded in the fib extension on the main chart is the notion that we are facing an ABC correction on NDX/SPY and we will see a C wave that is 1.618 or greater than the length of Wave A. If we look at the chart the last bit of serious price action has been between the 2.618 and 3 extension levels and so over the course of the next leg down I will be watching for NDX/SPY to chop its way down there for another consolidation.
I am not sure most people are emotionally prepared for the long term targets. I have been watching for it and I am not sure I am emotionally prepared for this. People that buy the index to hold, whether it be retirement accounts or something else might not get to break even for over a decade. Last time NDX/SPY had a bull trap NDX went down 80% from here. Here is the annoying thing, both NDX and the pair had a bull trap. Right now NDX has just got done setting an all time high. If both the NDX/SPY pair and NDX were both looking at bull traps I think more people would take this seriously.
Lots of questions remain unanswered if the broad conclusion of this post is correct. Will any bear market still be multi-year? What will happen to the money supply generally? Interest rates? All hard to predict if anything resembling the scope of what I think will happen will happen.
Generally speaking, since the dotcom crash NDX has gone up faster than SPY and so that has made it the bet for people to "just by the index" to make their gains. But now with this long term pattern forming it is signaling that NDX isn't the main bet to make. There are two main propositions from this formation: either SPY will start to outperform NDX to the upside or given the situation of the broader markets, NDX is going to lead the charge downward in a recession. Given how much negativity we see in the system combined with the topping pattern I think it will be the downside.
If you compare the NDX/SPY chart to NDX you can see that these top formations on the pair do predict a dip on NDX. So far these dips on NDX have been great buying opportunities because they have been higher lows. Eventually NDX is going to print a lower low. After that lower low we are at risk for a lower high and that sets the bearish trend.
Imbedded in the fib extension on the main chart is the notion that we are facing an ABC correction on NDX/SPY and we will see a C wave that is 1.618 or greater than the length of Wave A. If we look at the chart the last bit of serious price action has been between the 2.618 and 3 extension levels and so over the course of the next leg down I will be watching for NDX/SPY to chop its way down there for another consolidation.
I am not sure most people are emotionally prepared for the long term targets. I have been watching for it and I am not sure I am emotionally prepared for this. People that buy the index to hold, whether it be retirement accounts or something else might not get to break even for over a decade. Last time NDX/SPY had a bull trap NDX went down 80% from here. Here is the annoying thing, both NDX and the pair had a bull trap. Right now NDX has just got done setting an all time high. If both the NDX/SPY pair and NDX were both looking at bull traps I think more people would take this seriously.
Lots of questions remain unanswered if the broad conclusion of this post is correct. Will any bear market still be multi-year? What will happen to the money supply generally? Interest rates? All hard to predict if anything resembling the scope of what I think will happen will happen.
Note
On the three day chart the price action appears to be breaking down out of the wedge formation and I suspect we will see the pair reach he 1.618 fib extension of the the next month to quarter or so. Timing on a move like this is always the difficult part. The RSI is coming down from a high that it has not seen in over a year and the MACD is crossing bearishly.
A look at the daily chart VPVR is even more bearish and would suggest that the 2.618 target is very likely.
Note
Note
It does amuse me from time to time that one of my most important macro posts is so little viewed. But for those that are following, the breakdown continues and NDX/SPY continues to move to target. I hesitate to go long in any market under these conditions for trades until we get closer to target.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.