Mid-Week Macro


Lockout Continues

As we move into the end of the quarter, buyers continues to push off the lows creating a lot of chatter about the bounce turning into a reversal. Every new leg starts with a bounce.  It is during that bounce that we get the best information of staying power through the pillars of relative strength. Breadth is a big player here, but if small caps lag, it can be a little deceptive if you don’t know how to parse the data. The Power Universe is an all cap, equal weighted custom index we build to see how the stocks in our universe are faring and give us a basis to start carving it up.  The buying action has been in the form of a lockout move so far, but some back and fill would be good for both staying power and setups. However, we can’t forget rotation can propel things a long way Its not just sector rotation, but size rotation as well that can lead to relatively mild consolidations.

Power Universe RSI

The Power Universe is finally seeing the RSI move back over the 60 level and into a fresh RSI bull range as it breaks both the downtrend line and the recent highs. This comes after being in a bear range since late November. These two milestones help flip the broader picture back on the constructive side for now, with the potential to build into something much bigger. Just potential for now though…

Universe Breadth

  • Overall Breadth has turned around considerably in the recent sessions.
  • NHNL with a strong showing recently and the 30ma is curling up.
  • The cumulative advance decline line has broken the near term downtrend
  • The percent of stocks above their 20, 50, and 200 day moving are all back over 50% now with %>20sma nearing the 90% zone
  • McCellan Summation is running higher and has now crossed the flatline.
  • The McClellan Oscillator and Breadth Thrust are getting a little hot short-term, but they are not as telling on the upside as they can be on the downside. still oscillating around the flatline

Short-Term Breadth

Short term Breadth measures aer very hot at this juncture and could use some cooling off for a few days.  The run off the lows has been strong and relentless even as it rotates around the stock universe.  The Moving Average breadth picture shows this strength is spreading through the longer measures. Consumer Discretionary are teh worst, but also saw the steepest drops at the end of their down moves. The %>200sma are still strikingly low non the less.

Intermarket View

Intermarket view shows the equity indexes have climbed their way right back to the top behind $USO and $DBC with $IYR right on their heals. REITs have come on strong over the last week. The Size and Style RS Rankings lists I threw in just because the $MGK Mega Cap Growth ETF has broken into the top half of the list. The first time we have seen any growth up here most of the year. As mentioned in the Weekly Macro, the larger the better it seems right here.

Inside the Universe

Below I have a few different views inside our Power Universe.  It is not exactly macro, but does play a bit to the broadening of this move. I  have the Sectors sorted by ranking. After that I have the top performing subsectors yesterday and the top RS gaining subsectors to get an idea where the flow has been heading.  Much of this movement has been in spaces with lower RS scores giving a good look into the current rotation that helps keep things afloat and give us our next spots to go check out for setups.

Wrap Up

Great moves over the last week or more with a good bit of rotation while short-term flags and setups continue to materialize if you look. This is more than just short covering and saw a good wave of first responders into the lows.  Now we want to see come back and fill that brings in the second wave of intermediate to longer term investors back.  We speculated once the bounce took hold it could play out as a chase into the end of the quarter, and that looks to be what we are seeing so far. Still downside risks for a pullback which would be welcome as long as it doesn’t build into more. Things look more constructive now on an intermediate and longer term view than last week and have some room to settle and regroup if needed. A new month could bring that and a new batch of setups and rotations to follow.