The markets are hanging on for dear life at a very precarious level. The QQQ has two inverted bullish hammers, both closing under the 100DSMA. It reminds me a little of Mufasa clinging to the side of the cliff, desperate trying not to fall into the raging stampede below. AVGO’s earnings report is playing the role of Scar right now and it looks like they just sank their claws in while smirking and saying, “long live the King.”

There are plenty of bearish 10EMA plays out there if anyone is looking for a little bearish exposure to hedge against volatility. A bearish 10EMA trade is simply shorting below the first bullish candle that closes below the 10EMA. The path of least resistance for a lot of these stocks looks to be lower, even if just for a little bit. Friday’s August jobs report will either confirm the downward trajectory of September or prove the current support levels as resilient. This means that Friday’s candle should give us a good preview of what is to come next week. For the bullish case into next week we would want to see a close back above Thursday’s candle on the QQQ.

QQQ

Semiconductors are currently leading the market lower, which is a complete 180 from earlier this year when they were pulling the market higher. NVDA, ASML, LRCX, INTC, MU, ARM, and now AVGO have gapped down and broken support on their recent earnings. SMH retested its double top on August 22nd and has been selling off ever since. A gap below Wednesday's and Thursday's candles should send SMH into the 200DSMA around $217.00. Watch for that level to act as short-term support, but with the souring narrative around A.I. stocks, there’s a chance that support could break, leading SMH to test the key support at $200.00. A quick bullish swing off the 200DSMA could be a nice bullish opportunity because even if the red drawing below plays out, risk could be mitigated, and stops could be trailed during the short-lived pop.

SMH

Oil finally broke down out of its multi-year triangle and looks like it is headed lower. This fits nicely into the recession narrative and puts the reinflation narrative on the back burner. The longest yield curve inversion in history, using the 10-year and the 2 year, just ended after 783 consecutive days. Historically, this flip has occurred near the start of a recession, give or take an entire year, and has a flawless track record dating back to the 1980s, as long as you give it that full year to play out. Gold, which represents a fear trade and a flight to safety, is continuing to push into the all-time highs. With all of these economic indicators and charts pointing towards a recession, it looks like rocky times and volatility lie ahead.

Of course, this time could always be different, and even if it’s not, a recession does not always mean a large drop in the stock market. Plus, if the labor market can remain resilient and company earnings can stay strong, we could be looking at that full year timeframe before the start of a recession. Either way there is elevated risk right now in the market and respecting the bearish tilt that September and October usually bring seems like a prudent idea.

Crude Oil