The supercomputer that monitors the stock market for Didier Sornette has diagnosed a bubble in four sectors of the market and has recommended shorting the FANG stocks.
Sornette’s bubble calls result in a crash of at least 20% roughly 60% of the time. In those cases, the crash reaches its target within two weeks of the bubble call.
The other 40% of the time, the market starts a sideways move that can take months but usually breaks out downwards into a correction of at least 20%. Occasionally it’s less, like 15%. It can be a lot more (like the dot-com crash).
Occasionally the sideways move is fast and results in an upwards breakout that extends the bubble. You can get a few of these extensions (as at the top of the dot-com bubble) before a bigger crash.
QQQ is potentially putting one of the strongest possible topping patterns on its daily chart—a head and shoulders with a triangle right shoulder. The likelihood of that topping scenario is increased by the big red candle QQQ put in a June 9. That was a Neely short set-up for a retrace of the move out of the February 2016 low.
QQQ needs a serious stab at a retrace to VWAP of its navy blue long-term megaphone, which started forming in July 2014, to be legal for an upwards breakout from the megaphone (green scenario). That would also retrace the light blue rising wedge.
QQQ could also go all the way for the navy blue megaphone bottom, but the fast topping process in the green scenario would make that scenario less likely.
The purple scenario becomes more likely if QQQ goes for delay and a more extended topping process. The charts are aligned beautifully with Sornette’s call.