Mid-Week Macro Review

April 7, 2022

Markets continued on the defensive after hawkish FED speak spilled over into Wednesday with an ugly gap down as investors waited for the realising of the minutes.  Being 3 weeks old, the Minutes didn’t do anything to change the mood.  Markets stabilized and  moved sideways most of the day.  Now with 4 days off pullback off the strong run, nose and rhetoric are high as we are at a juncture that both sides could be right and are trying to convince everyone else. Ultimately, price will decide so give it the most weight. 

Triple Play

The TP daily shows the gap down through the MA bands today as the RSI pull back from their small moves over 60.  RSIs now need to hold over 40 on any pullback and reverse to give confirmation of the RSI range shift. teh small piercing is not enough after the strong downtrends.  But it is also a bit rich for us to expect it to go straight from the divergences to breaking hard into a new RSI bull range. Some ebb and flow is fine and so far that is what we have.

Overall the $SPY and $QQQ retracements are shallow. The $IWM is weaker and continues to look more vulnerable. All 3 are in RSI bear ranges on this level. CFG have already dipped below zero and are bouncing with RSI from the mid 20 levels. Oversold, but can go further or start to form divergences as price continues to probe lower. Today should be a decent battle being the Thursday before OpEx which can often put in a low going into the Expire.

Intermarket View

Bonds continue to ride the bottom as yield pressure remains, Equities are stuck right in the middle and Commodities continue to lead. 

Size and Style seems to be in a bit of disarray on the 3mo version as things start to bounce around. Last week we saw MGK move up in the top half, then all growth moved up, then Value was back dominating and today $VOT is on top.  Tons of jockeying around giving another angle to the battle and rotations that are happening. 

World ETF Performers

Just a quick highlight of the world ETFs that have been positive over the last 4 days since this pullback started here in the markets.

Universe Breadth

  • Overall Breadth weakening on this bounce on the shorter term measures
  • Longer Measures are making lower highs here giving caution
  • %>50sma are back below 50%, but over time we have like 40% as the pullback demarcation, lets see if it can hold above that.
  • McClellan Summation is curling. We will be watching for a kiss or a cross here in the coming days.
  • Breadth Thrust nears 40 as the McClellan Oscillator drop below zero
  • Pullbacks are effecting breadth here, but still within the realm of normal, but doesn’t have a lot of wiggle room left here.

Short-Term Breadth

Shor-term breadth measures are geting nicely oversold from a pullback perspective. %>20sma is where we want to see the least pink or red while we wach for extremes in the PMNHL 10day and Breadth Thrust starting now. These have a good chance of bouncing the hardest once they individually bottom. On the other hand, the ones that aren’t even getting red and remaining green are the relative strength leaders aren’t giving any reasons to doubt they can also participate well in any market strength. At that point it is about trading style and time frame, so pick your poison.

Sector Views

The sector views are a good example of this idea as well. Defensives are leading in the pullback, but they are also the relative strength leaders longer term at this point.  Cyclicals taking a beating over the last week. I also noted the Communications Services standing out as I think it may be worth paying attention to after being the lowest RS for a while. Below I wanted to share the Subsectors that have performed better than the $SPY over the last 5 days. It’s probably worth paying attention to if we can get any upside traction.

Volatility

Volatility dropped hard off the last BB piercing and made a higher low on Monday and bounced hard the last two days. Wednesday though saw  as strong start and then some volatility drain after the FED was done leaving a long tail. It will be interesting to see how today shakes out.

Wrap Up

As always, no reason for an big predictions, we have plenty of ways to see what is happening in real time and react as we see changes.  For now we are stuck in the middle of a bear market retracement that has every opportunity to head back to the lows and continue the trend.  We also have a strong thrust off the lows that give a little more constructive buying action than just the run of the mill short covering rally. Now we are in a pullback on the daily time frame that has every opportunity of holding the line and continuing to improve the longer term picture. We will find out soon which one has more conviction and willing to put the money behind it.