updated: Jan 28, 2025

Amidst all the carnage in the tech sector yesterday, one observation bears repeating: our charts were quite accurate when, on December 26 [see: Update on COMP], we wrote that COMP had reached important overhead resistance.

Even though COMP hasn’t broken free from a very bearish chart pattern, SPX retreated only to exactly where we expected – a textbook backtest of the channel it broke out of.

continued for members…

There is a very big conflict setting up in equities.  While COMP looks positively bearish over the next month or so, VIX suggests that stocks will be well supported. Note its sharp reversal at both the top of the falling purple channel as well as the red fan line from the Aug 5, 2024 highs.

The rest of the equity charts…

 

It seems unlikely that SPX could go up and make new highs while COMP plumbs lower lows. So, we continue to look for clues in other factors. Note that EURUSD has reversed and is backtesting its broken red TL.

Though USDJPY hasn’t yet reached its SMA200.

Does it really matter – especially if the US maintains higher for longer interest rates? DXY seems unlikely to continue falling as long as the US maintains higher interest rates than the rest of the developed world.

In any case, COMP’s bearish charts are fairly clear and should hold unless something unforeseen comes to the rescue (an FOMC rate cut, a huge tax cut, etc.)

The current PE for the QQQ is 39.21 – 2 standard deviations above its 3-yr average of 30.28. The tech sector of the SPX is at a 36.81 PE – much higher than the overall SPX at 25.93 which is already 4.18 standard deviations above its 20-yr average PE.

From the weekly chart, we can see that COMP has a habit of retreating to the white channel bottom and the weekly SMA200 whenever it stumbles. Although it already backtested the Nov 2021 highs, the SMA200 is approaching them again.

Unless COMP has a huge pullback to the .618 – currently  at 14,399 (-25%) – then we could very well see another backtest of 16,212 (-16.2%) or 17,877-18.154 (6.1%-7.5%.)

It’s not even close to being oversold on a weekly or daily basis.