Mid Week Macro 1/26/2022

Triple Play

SPY, as with all of the indices are still well below their MA bands with RSI in a bear range. RSI is at 26.2 with CFG at -16.2. RSI hasn’t been this low since March 2020. CFG was around the same level in September 2021. S&P futures are up 1.6% so far this morning. 

QQQ has been hit hard recently as tech has been sold off. Netflix gapped down over 20% on earnings after close Friday. Microsoft gapped down 5% before reversing over night last night to now being back up 5% pre-market. Currently the Nasdaq 100 futures are up 2.43% implying a gap up this morning.

IWM is currently in a drawdown of over 18% as of the close yesterday, just shy of the 20% “bear market” number. It’s interesting to not the divergence of RSI and CFG with price making a new low. RSI is also the highest in IWM of the three indices. Futures this morning are up over 1.5%.

Universe Breadth

  • Breadth has been weak lately without question. The lack of participation in the uptrend shows that demand for stocks has declined.
  • Short-term breadth measures are extremely “oversold” and in their historical low ranges.
  • New Highs vs New Lows has diverged as price has made new lows
  • The cumulative Advance Decline line has broken down to new lows that previously held 7 times since April 2021.
  • The % of stocks above their 200 day moving average has steadily declined since June 2021 as stocks gradually lost their long-term moving average
  • % of stocks above their 20 and 50 day moving average are at the low of their historical range and are showing a slight divergence this week.

Energy

Energy continues to be the place to be this week. As the chart shows, Energy and the S&P continue to diverge in price. Energy ETF $XLE outperformed the S&P by over 5% on Tuesday. Breadth in this sector is the best with 71% of stocks above their 20 day moving average, 78% above the 50 day, and 76% above their 200 day moving average. The next closest sector in short term breadth is financials with only 29% above their 20 day moving average.

$PDCE is an Energy name that has shown great relative strength this week and is nearing a base breakout this week. The bull range on RSI held with it barely breaking below 40 twice, but quickly reversing from that level. Now RSI is at 60 and will be telling of the trend this week as price tries to break out as well as RSI. 

Volatility

Volatility remains elevated as we have seen this week. Massive price swings are the norm as VIX implies a daily move of around 1.8%. We’ve seen major swing every day this week and it is expected to continue.

Wrap Up

Indices are well off their highs this week with QQQ and IWM lagging SPY. Short-term breadth is at historically low levels and can be considered washed out. We are seeing some buyers this week starting off with a 4.5% intraday reversal in the S&P as well as futures up this morning. It is key to keep in mind that breadth is still very weak and many stocks are below key moving averages. Energy has bucked the trend and is heavily outperforming. With the FED meeting today, volatility high, and some political tensions the rest of the week will be an interesting one.