Mid Week Macro 2/02/2022

Triple Play

SPY has gained roughly 2.6% so far this week as of the close on Tuesday. RSI and CFG have both rallied from deeply oversold conditions to 48.9 and 90.7. SPY is the first index to reach its MA bands. It will be important to see how it reacts to these levels throughout the rest of the week.

QQQ has rallied over 9% from the lows. That tops SPY’s 7.5% and IWM’s 8% rallies. It’s interesting to note that RSI was lowest for QQQ at 23.5 on last Thursday so this may be a sort of oversold rally. The MA bands are close by and we will be watching closely for weakness, or strength. Both give us critical information going forward.

From top to bottom IWM retraced ~23%, the most of the major indices. There was a divergence in RSI from the previous two swing lows as momentum wasn’t as strong on the latest decline. It currently is ~4% from the middle of the MA bands. RSI and CFG still lag SPY and QQQ.

Triple Play Depth

With the Daily charts trying to improve, but in bear ranges, we need to look above and below to get more context. The weekly charts below show the SPY holding the MA bands and forming a morning star pattern here midweek. It is a bit dangerous calling a pattern this early in the week, but if we can close near here or higher, this pattern with the RSI setup here looks positive still. QQQ just under the MA Bands, but is climbing back and holding the RSI bull range test for now. IWM is in a bear range and weakest of the bunch. as we mentioned this weekend, it needs over 209ish to see improvement.

The daily charts are still bearish overall and coming up into the MA bands and some resistance, so we need to respect a turn down here, but don’t think it will be a 1 day event. There will likely be a battle in at least one if not all of these indexes before we can see which way things are likely to point next.

The 65 Minute view of the TP Charts did shift back into RSI bull ranges during this bounce and turned the MA bands up in the process. This was needed, now it will be important to see how the RSIs act when price gets challenged over the short term

Universe Breadth

  • Breadth is responding strong to the extreme oversold levels and strong relief over the last couple of days.
  • Extreme divergences have worked off the extreme and now see if buyers can sustain the push.
  • NHNL Differential still on full sell signal showing long term measures need work
  • McClellan Summation Index has flattened, but still a bit before we get a signal.
  • From here we need to see short term to longer term progression. It will take time and improved participation
  • %>20MA is out of the bottom quartile

Breadth Washout

Short Term breadth was very washed out after the Friday close on 1/21/2022

The following Thursday, 1/27/2022, we saw some breadth improvement creeping in even though the Universe and SPY both closed at a lower closing low.  We posted these to show some important divergences were showing. Note how Energy, Financials and Consumer Discretionary were a few clearing in some spaces.

Finally, we take the same view as of last nights close.  A drastic difference in where things stand and a great opportunity to compare and see what areas made the most improvement.  We made comments as these were showing, but its nice to be able to set them side by side and compare.  It is not just about knowing we are washed out, but also knowing where to look for the best rebound potential.

Large over Small

Moving in a little from the edges, here we look at the relative comparative of the QQQ to IWM giving us another view to drill home that so far, larger names are still doing better than the smaller counterparts.


Volatility has also calmed down a ton.  We like to use this with Bollinger bands and concentrate most on when it closes back inside the bands after it has had 1 or more closes outside the top band.  This is a simple but powerful signal to pay attention to for some context.

Wrap Up

While the markets have bounced hard out of the extremes, we are now entering the harder part of the move.  Direction will be less clear for a few days until the buyers and sellers resolve their issues.  The resistance we are coming into on most indexes here shortly will likely serve as the battleground.  Don’t be too quick to choose a side as both have points in their favor, but at the moment we need to respect the bearish action that got us here and not let our guard down.