Video summary
The daily market recap highlights a divergent performance between major indices, with the Dow Jones Industrial Average showing clear weakness since mid-August while the S&P 500 demonstrates resilience. The Dow has entered a distinct downtrend on the daily chart, characterized by lower highs and lower lows that suggest a potential shift toward a bearish pattern known as a lowercase H evolving into a lowercase M, which could signal further declines if key support levels are breached. In contrast, the S&P 500 successfully broke above its resistance zone and is currently holding strong near recent all-time highs, having recently escaped a declining trend structure referred to as a "falling axe" or expanding cone formation. This divergence is significant because the Dow represents a core mix of the U.S. economy, yet it is pulling back while the broader market index finds support around the 7,700 level, indicating that price action has shifted from a propellant zone into a critical support area for the coming week.
Despite the positive momentum in the S&P 500 and the Nasdaq-100 (QQQ), which are approaching their respective all-time highs with increasing volume confirmation, not all sectors are participating equally in this rally. The small-cap Russell 2000 (IWM) is struggling to maintain strength, displaying weak technical indicators such as a declining MACD and poor regular strength metrics that suggest it is nearing a potential sell signal on the monthly chart. Furthermore, while semiconductor stocks have rallied sharply from levels under 540 to over 560, they are exhibiting fractal patterns that resemble a lowercase H formation, raising questions about whether this sector will lead the market higher or if it is entering a corrective phase. The transcript notes that volume was surprisingly low during the initial gap-up move in some indices, which adds a layer of caution despite the impressive price advances, as genuine breakouts typically require sustained volume participation to validate the trend change.
Looking ahead, the technical analysis points toward specific targets and potential risks depending on how these patterns evolve over the next few trading days. In the context of Elliott Wave theory applied here, the market is approaching wave four targets in both the daily and weekly charts for major indices like the QQQ and the CompX, which historically represent the final leg of an upward impulse before a correction begins. However, analysts emphasize that reaching these targets does not guarantee an immediate reversal; instead, it marks a zone where other dynamics could emerge, requiring careful observation of whether the market can sustain its gains or if it will pull back to test support levels. The upcoming week is crucial as it concludes the current month, and the behavior of the monthly charts for indices like IWM will determine if the broader uptrend remains intact or if a significant decline is imminent, making the next few days vital for assessing the true strength of the market's recovery.
Read the full video transcript
in.
Hi everyone, Basel Chap. I'm sitting in
for Tommy O'Brien. This is the Tom
O'Brien show. Usually I do the 10:00 to
11:00 show, the Tiger Technicians Hour
and my service here is the opening call
daily newsletter. So this is what I
wanted to show you. Look, the Dow since
the 5th of August at 54,744
has really been in a downtrend. It's
just there's no other way to look at it.
It's a sell mode in the daily chart. The
weekly chart hasn't yet given a sell
signal, it's getting close, but it
hasn't. So, what we're looking at is um
there was the pattern that we call the
lowercase H that can go to a lowerase M
and if it takes out the left side low,
you got to be careful because we it
could be a one to one to the downside.
And then it did another H pattern that
lowerase H. So, what we're looking at
here is just uh weakness. The 914, the
pink 914 is still very poor. the uh it's
under the 14 period. Look, the 14 period
is black. The the rally today went right
up to the 52,279
level uh where the resistance is and the
pink 9p per moving average is at 52,77
and here we are at 51,896.
Just not good action. This this market
has been impacted in the sense that the
Dow 30, which is really a a core mix of
the United States economy, that's
pulling back. But hey, wait a minute.
Look at the S&P. This is very different.
The S&P has been holding well. Look, it
broke above the CH wave inside track
repellent zone. Now, this a propellant
zone holding very nicely up 4.42 today
at 7769.
Uh the all-time high was 781670
on the 13th of August. Uh it's been
making low lows and lower highs since
then except for yesterday where it
suddenly broke to the upside. Now is
that break to the upside because because
of crude oil pulling back. We'll talk
about that in a moment. But look what we
we're talking about here in the weekly
chart is a pattern that I if I can just
find it quickly I call the falling axe.
All it is, it's a very simple way of
looking at a a rising trend that
suddenly uh bumps into resistance
usually at a peak D in the CH wave D, E,
F or G, and then it pulls back and it
makes lower highs and lower lows. It
looks like this.
A axe handle,
the blade of the axe itself or declining
expanding cone formation a little bit
more wordy. Uh and then all of a sudden
it finds some support. And that support
says, wait a minute, I could make a
V-shaped recovery or a cup formation cup
formation recovery and take out that
declining trend line, which it did. Now
all of a sudden that I had this is a
technique I developed a long time ago. I
call this inside track repellent zone.
Now it becomes the propellant zone. So
7700 is really important support over
the next week. But most importantly look
where we are. Today's high of 7782.19
is uh what is that? Seven let's score
seven points there. Uh 10 20 27 points
away from an alltime high. No, a little
more. And meantime, back at the ranch,
you've broken out of that wedge
formation. And that's that's great. And
there we are. The second day it happened
yesterday, the first day of the week.
This is the second day of the week is
following through a little bit. Don't
you, Canada? Got to be careful. Could
pull back tomorrow, but in the meantime,
so far, this is good action. 914 is look
green. MAD is positive. It's only just
turned positive. Regular strength is
pretty good. Not as good as it was way
back at the highs of the 80 the 13th of
August. But look, the stochastic is
rallying. It's not great. It's a 63% but
it's rallying. And the onbalance volume
is quite po. So volume isn't really
there. You see there was a big spike in
volume yesterday. I'm sorry the day
before. Yesterday that gap up didn't see
volume. So this is going to be very
important. But price is priced and it
looks like it wants to get close at
least to the alltime high. the QQQ a
little different in the sense that the
um weekly chart had this this inside
track repellent zone or the falling ax
and then what did it do it stalled up
until Friday and then yesterday it gaps
up it leaves that alone it's just it's
gone way above and that's a good sign
because it says now you know where the
support is but most importantly we are
70 746.94
four. We are less than $2 away from an
all-time high. We surely should do that.
And that would start leg D. D in the
chap methodology is your target in a buy
mode, fourth highest peak. But at the
same time,
it doesn't mean to say, oh my god, D, we
got to be careful. D is where other
things can happen. It's your target in a
buy mode in the CH wave methodology. And
here we are within points away from that
target on the uh the uh QQQ monthly
chart. But wait a minute, look at this.
CX
the comp index
is at 27,248
up 126. Not only did I I didn't have
that in there, that trend line, but not
only did it gap up, but it's followed
through very strongly to day two, a new
all-time high only in legac. still has D
to go in 2026. Isn't that interesting?
And look, C in the weekly, C in the
daily. So, this is going to be very
interesting. At this point, I I'm going
to refrain from saying it, but I should
say in the chap wave, we should get to D
in the daily, we should get to D in the
weekly, and we should get to D in the
monthly. That's just the way it is. I
don't know if it's going to happen, but
that's the normal uh the normal
reference that we would make. All right,
let's go on. We're going to go to the
IWM. Not as good. IWM right now up a
dollar 81 at 287.40.
Huh, look at this. Struggling.
Struggling. The 9 period moving average
ugly. Uh, we've actually gotten to a 138
retracement. 1.38 retracement. We'll see
if that's going to hold. Um, MACD is
weak. Retro of strength is weak.
Sarcastic terrible 24% onbalance volume
made a little V-shaped turnaround, but
it hasn't helped very much. And the
monthly chart is a whisker away. It
doesn't have to, but it's a whisker away
from this PD decline to start a sell
signal if it goes pink. But it hasn't
yet. But it's only a leg see in the
monthly chart. We have to wait for the
end of another week. I think it is
another week. We say 21 22 just over a
week. Wednesday a week. Tomorrow week we
end the month and then we'll see where
this monthly chart goes. All right. Now
this is very important. Why? Because the
semiconductors, my belief is they lead
us up and they lead us down. And they
they've been saying that there's been a
digestive phase. Why hasn't there been a
digestive phase? Well, there has. But
look at the rally that just came from
just under 540 to 5 to 60 right now up
10. And you've got this lowerase H
that's start to go to a lowerase M.
We'll see if that's going to break
above. But so far is fractally higher
than that left side PK. Oh, the week is
young. We'll be back in a moment. Basel
Chapman sitting here for Tommy O'Brien.
This is the Tom O'Brien show.