In context of the week’s market gains Friday’s decline was minor, but context may matter.
While bears again got the rug pulled from under them as markets got a new dousing of central bank liquidity, beginning with PBOC intervention on Monday and Tuesday and ongoing rounds of larger repo operations accompanied by new rounds of optimism, virus optimism, election optimism, you name it, and markets gapped relentlessly higher to new record highs suddenly these gains were taken away on Friday.
The question arises: Did indices such as the $DJIA put in a double top?
It may be a ridiculous question to raise without confirmation, but note all new highs came on negative divergences and were rejected below the previous highs in some cases.
Here’s the $DJIA daily chart:
The new high on a pronounced negative divergence didn’t hold and $DJIA fell below the January highs by week’s close.
The weekly chart shows a similar picture:
At the same time, despite the fierce rally this week, $VIX defended its pattern breakout all week long and then took the weakness on Friday as the occasion to bounce off of that trend line:
This suggests $VIX has potential to see more strength into next week.
I context of the technical red flags seen this week in $NDX (Narrow, Warning Signal) the question arises: Did markets just double top? If so: Uh oh.
I’ll discuss in more detail in my weekend update.
