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Authored by Sven Henrich via NorthmanTrader.com,

Last week we discussed the importance of the $NDX chart and after another rally to the previous highs $NDX reversed hard for a potential double top and broke its trend off of the March 23 lows. A technical move with potential significant implications upcoming earnings reports from $AAPL and $AMZN offering further rally potential notwithstanding.

But several observations are notable:

A week that was dominated by positive headlines at the beginning of the week, namely an EU stimulus package and a barrage of hopeful Covid vaccine headlines the initiative positive price action induced by these headlines ended up being sold leaving later buyers potential trapped:

Increasingly reality is challenging the narratives of hope, optimism and even momentum. Jobless claims keep coming in higher than expected, permanent layoffs are mounting as are permanent business closures. “The unemployment situation is really, really bad” as the prospect of persistent higher unemployment puts a dampener on the V shaped recovery narrative.

This as virus deaths in the US have been rising by over a thousand a day again for several days in a row and PPP benefits are about expire putting a heavy focus on whatever stimulus package Congress can agree to in the next week or two. Time is running out,, the clock is ticking and the US election is coming ever closer.

And there are threats mounting against big cap tech as the monopoly power of some of these companies is coming under ever closer regulatory scrutiny. Case in point was a WSJ article highlighting how Amazon met with startups under the guise of  investing in these companies only to copy their ideas and then launch competing products.

Hence it is notable that the $SPX’s foray into new highs above the June highs was not only reversed but again stopped precisely at the very same trend line that was resistance in June:

This as earnings reports of big tech heavy weights such as $MSFT and $TSLA failed to inspire new buying but rather saw selling which spilled into the entire tech sector culminating in its breaking the up trend off of the March lows:

A rally driven by optimism, hope and liquidity suddenly finds itself reversing even with more hope, optimism and liquidity right at the point of another foray toward record valuations inside a recession:

Yesterday markets closed at 155.3% market cap vs GDP with negative earnings growth no less
The largest financial bubble ever. pic.twitter.com/6ETTPMzVAk

— Sven Henrich (@NorthmanTrader) July 23, 2020

Perhaps valuations mean something after all.

For a more in depth discussion of the issues please join us in this week’s edition of Straight Talk including what to watch for going forward:

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Note: I’ll also be posting a separate Market Video focusing on the latest technical implications this weekend (For those not already signed up for these videos please see link to sign up).

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