BY SVEN HENRICH
As bears are capitulating and markets keep making new highs on the heels of yet another dovish speech by Jerome Powell investors continue to chase historic valuations.
Nothing has mattered so far, not the imbalances, not the rising $VIX, not the data, not the historic stretches in the charts of individual stocks such as $TSLA, $AAPL and others nor valuations.
But the deteriorating picture underneath markets has left a familiar trail in some of the signal charts and tech specifically looks at very high risk of a sizable coming correction.
Specifically the chart that is flashing red here is the $NASI, the Nasdaq summation index.
It has built a very specific structure that has signaled sizable corrections coming in the past couple of years.
While $NDX keeps making new highs NASI’s price action weakens on new highs, while $NDX is engaged in a pattern of price compression as it keeps rising in a steep rising channel patterns.
I submit we are seeing this again now:
In previous occasions the break in the pattern have led to significant down moves, the last one of course being in February of this year leading to the crash in March.
We also saw a sizable correction in May in of 2019 following the signal.
Both times the divergence took roughly 2 months to build, a similar time frame that can be observed here.
Tops are processes and this process here has been building. No breakdown has taken place yet, but the warnings signals are mounting and are screaming risk off coming.