We are fast approaching the moment of truth where the Qs and SMH either breakout to new highs to panic the bears into capitulating, versus a failure to get the breakout job done later this week, early next, likely to open the selling flood-gates as the bears, emboldened by the failure, move in for the kill.
If the Qs and SMH do breakout then I would expect an explosive rally to unfold in April that drives the trend trading indicator at the bottom of the chart below across the high risk - exit - line, which will be my cue to take profits on longs, in a replay of what happened last spring, marked by the orange circle.
If the Qs and SMH fail to panic the bears, then I believe danger is super super high that the stock market will suffer a plunge from extreme overbought conditions to an extreme oversold one, similar to the two prior examples of rally failures marked by the red circles next to the blue ones.
The blue circles highlight how the stock market can remain in the extreme overbought camp for prolonged periods while the ADX line is rising. The red circles highlight what happens when the ADX turns south while the stock market is overbought. The green circles show the buys once stocks reach oversold levels when the ADX is falling. The current ADX is waffling sideways, getting ready to move deliberately in one or the other direction.
So, in short, I believe the next 2%+ day - either up or down - will set the direction of the next 15-20% move for stocks, with that decision likely to be made later this week, early next.
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