Triangles
RLT Newsletter
We’re now halfway through July, and the bullish historical tilt has held up so far, at least for the majority of names. SPY continues to hold up quite well as the banks have performed strongly during earnings season, with GS, BAC, and JPM all making new all-time highs this week.
Right now, the main reason QQQ has been underperforming is the same reason it outperformed in April and May: semiconductors. Both SMH and SOXX closed lower once again today and have developed fairly obvious head and shoulders patterns, essentially mirroring MU’s chart.
SPY 3 Day Chart
MU and the Semiconductor Setup
A few weeks ago we discussed NVDA’s head and shoulders pattern and how it was perhaps to obvious, making it less likely to play out as expected. NVDA did in fact pop bullish instead of breaking down for a nice bullish play off of the long-term averages.
Today MU has that same obvious head and shoulders pattern, and it has yet to close below the neckline, so the pattern hasn’t officially triggered. Even if it does, there’s a significant area of support between roughly $820 and $780. The Anchored VWAP from the March low sits near $793 and will be a key level to watch if price declines into that area.
When a head and shoulders pattern fails to break down and instead turns into a bear trap, the bullish reaction is often quite powerful. I’ll be watching MU very closely to see if it can pull back into that buy zone and then bounce. A 25-30% rally from that area back toward $1,000 wouldn’t be out of the question, potentially creating a B-wave and a lower high before a larger correction eventually develops.
Either way, if buyers step in around the gap fill and the Anchored VWAP, I’ll be looking to position long. If they don’t, a move down toward the 100-day SMA near $674 becomes much more likely.
The last time MU reported earnings, they crushed expectations and the stock still dropped roughly 34%. If something similar were to happen again, it would put price around $823, right into my key supports.
MU Daily Chart
QQQ Still Building Pressure
QQQ continues to move sideways inside its triangle pattern as software and semiconductors take turns leading and lagging the market. Once those two groups begin moving in the same direction, either higher or lower, I believe that’s the direction the broader market is likely to follow.
QQQ once again found support at the Point of Control from the March low and bounced today, continuing to build pressure while consolidating near the highs. Even on my bearish Elliott wave count, I can see it pushing up into the upper trendline and filling an overhead gap around $733 before it would break down. You know I like scenarios where both the bull and bear counts point to the same short-term outcome.
When markets move sideways, the directional edge becomes less pronounced, so I prefer to trade a bit more conservatively. Even so, I still believe the overall edge remains bullish, and the risk-to-reward on most charts continues to favor higher prices. Unless the lower trendline and then the $700 level break, I’ll continue looking for opportunities to add bullish exposure.
QQQ Daily Chart
Bitcoin: A Case for Higher Prices
As I mentioned in my July Fireworks newsletter, I believe there’s a compelling case for Bitcoin to move higher from here, at least over the short term, which is why I initiated a long position. BTC has now reclaimed the 200-week SMA and has continued to show improving relative strength.
I’ll be the first to admit that the larger structure hasn’t changed. We’re still seeing continued sharp moves lower followed by a choppy corrective rallies, which suggests that lower lows remain a high probability for now. Even so, I think a push toward $67,000, and perhaps even $70,000, before another leg lower remains the higher probability scenario.
If Bitcoin closes back below the 200-week SMA on a weekly chart, that would be an important warning that the next leg lower may arrive sooner than expected.
