Mid Week Macro 3/16/2022
We always here about the next FED meeting being the most important, but it seems this one is likely to have a decent effect on the short and maybe intermediate trend of the markets. So much anticipation and banter for more than two months now about how much they will raise. The forecasts for amount and reaction are all over the place, but definitely a feel that getting past it will relieve some tensions no matter what the initial reaction. With the VIX just now moving back below 30 and we are still pre-announcement, must less presser, no need to push anything now unless you are very short term.
SPY is the only of the three that did not make a new closing low on the 65min chart recently and is first back above the MA bands. and looking to challenge RSI bear range next.
QQQ pierced the previous lows, closed a candle down there and put in a nice reversal since. Today’s action (not shown) so far is adding to this and now up testing the down trend off the left side highs.
IWM put in a divergence against the last set of lows, but didn’t make new ones versus the February spike lows. This one has the longest to move for and RSI bull range shift, but can do it if we see buyers bite on this move.
- Overall Breadth is still weak but continues to put in divergences on the shorter term measures
- The cumulative advance decline line still tightening up with the price pattern
- The percent of stocks above their 20, 50, and 200 day moving averages have made higher lows again.
- Breadth Thrust low Monday was a higher low and above 40.
- The McClellan Oscillator still oscillating around the flatline
Short term Breadth measures have improved greatly from the Monday lows. A ton of red as the markets looked like they wanted to break down, now a day later we don’t see much warning. However, the green highlights does tell us which subsectors saw over 20% of the components making new 10 day highs, so they are likely some of the early leaders to explore. We already highlighted some in both the Power Sector Review and Financial Fortitude. On the other side of the coin, Energy has had a very tough time over the last week and seen a swift fall from grace on this sheet. Question will be whether it is a rest or reversal on a longer term view. Rest seems more likely, but price will tell in time.
Intermarket view continues to show commodities holding on to their to relative strength spots even after the route, and potentially even short term blowoff they saw last week. $USO took the worst of it, but the whole complex is feeling it. With all the tensions around and inflation picture not abating a lot yet, I would lean toward this commodity cycle not being down yet, but it did move a long way fast and some backfilling is just fine here for now. From an investment perspective, it would be nice to see Equities move back up this list, but it will take more than a couple of days to re-order this intermarket outlook.
Below I have added the equal weight sectors ranked by relative strength to show all of the worst were the best performers yesterday overall. Then when we dig down and look at all the subsectors that were up more than 2% yesterday we get a good list of spots to dig into for both ETF and individual names to put on our watchlist. However, from an overall market health standpoint, this action doesn’t tell us much other than some beat up spaces are likely ready for relief. Where buyers take it from there is anyones guess. As we see hard evidence of change, we will share it here.
$VIX has remained elevated over 30 for long enough so that many started looking at forward returns once it got back below that level. We often favor Ryan Detricks data in these situations, so we always look for hit take. I have posted it below. As you can see, Once it does close back below that level, which it did yesterday, usually the forward returns are much stronger than we normally see over average periods. So unless the world is ending, we could see a tradable bottom here, only time will tell if it is a more durable one.
It does feel like a buy the rumor (and extreme rhetoric) and sell the news potential here, but until we get pass the FED decision and the presser, there is no reason to guess at this point. The hints have been lining up for days, and not breaking down was a big one, but it is still only mid-week, so there is a lot of price action left to consider, but I would definitely have a short and longer term watchlist full in case those setups materialize faster than we expect.