Major index benchmarks have hit the pause button despite the start of a trade war that has the power to end the multi-year bull market. A quick glance at the calendar explains the odd reaction, with the start of second quarter earnings season just one week away. You can bet that Wall Street analysts and at-home traders will be listening intently to third quarter and fiscal-year guidance to gauge how U.S. companies view the revenue impact of current events.

The topic will be hard to ignore even if company executives deny any impact because the financial press will be pressing the issue at every opportunity. More importantly, public companies have a responsibility to shareholders to explain how a trade war might disrupt supply chains, especially if they sell products rather than services. This inward examination might even extend to big tech giants, who could get targeted by both sides in the next round of tariffs. (See also: 3 Sectors to Sell Short in a Trade War.)

The SPDR S&P 500 ETF (SPY) ended a multi-year uptrend at $213 in December 2014 and entered a sideways correction that ended with a breakout following the 2016 election. The subsequent rally unfolded in two broad waves, lifting the fund to an all-time high at $286.63 in January 2018. It sold off nearly 35 points in the next 10 sessions, hitting a four-month low at the 200-day exponential moving average (EMA), and has carved the outline of a symmetrical triangle pattern since that time.

The symmetrical triangle carries a neutral reputation but is viewed as a continuation pattern at the top of a long-term uptrend. Even so, there's little opportunity for longer-term positions until the fund breaks out above resistance at $280 or sells off through support at $260. Support and resistance lines are narrowing and will cross in October, which is important because new trends often take hold about two-thirds of the distance between a triangle's first swing and the apex.

On-balance volume (OBV) has barely budged since November 2017 (red lines), indicating a stalemate between bulls and bears. However, the fund is trading 15 points higher now than at that time, adding downside pressure into the daily tick. The three-month sideways pattern embedded within the broader swings may set off early but reliable trading signals, whether bullish or bearish, when the indicator exits the range between the two red lines.

The Invesco QQQ Trust (QQQ) ended its bull market run more than six months after the S&P500 in 2015, in line with years of market leadership.  It carved a broad ascending triangle pattern into the fourth quarter of 2016 and broke out, entering a trend advance that posted excellent returns into January 2018, when buying interest fizzled out above $170. It sold off 21 points into early February and bounced to a nominal new high in March.

The fund posted lower highs and higher lows into a June breakout that failed just three points above the March high, giving way to a decline that re-established range resistance near $175. The broader pattern continues to broadcast a shallow rising channel that should stall progress if bulls retake control and lift the fund to $185. However, the recent failed breakout may presage more bearish action that evolves into another type of range-bound pattern. 

QQQ's OBV looks weaker than that of SPY despite its stronger relative performance, topping out in January 2018 and failing a March breakout attempt (red line). The indicator failed to reach that line during June's rally to an all-time high, setting off a bearish divergence that preceded the failed breakout. Selling pressure since that time has been stronger than bulls will admit, dropping to the lowest low since March, when the fund was trading near $150. In turn, this raises odds for another test at the 200-day EMA near $160. (For more, see: 6 Big Techs Stocks May Get Slammed in a Trade War.)

The Bottom Line

Major index benchmarks entered range-bound patterns in January 2018, signaling a standoff between bulls and bears. This holding pattern remains in place as we head into the second half of the year, with no end in sight. (For additional reading, check out: 3 Sectors to Buy in a Trade War.)

<Disclosure: The author held no positions in aforementioned securities or underlying futures contracts at the time of publication.>