Power Snapshots

June 1, 2024

Highlights:

    • $IWM “wins” the week and still loses ground.
    • Technology’s renaissance didn’t last.
    • Mean reversion finally hits large caps.
    • This is exactly the type of rotation you want to see.

I love it when time frames line up. Getting to look at complete charts on 4 timeframes is worth the extra minute. First thing we see is these are not sick charts. The bears had a shot in April here, but May negated that for the most part and at a minimum put things back to neutral which favors the larger trend which is definitely up. $IWM was/is the biggest concern as RSI hasn’t gotten back over 60, but even here you put in a very tight RSI Positive Reversal on this recent monthly chop below the 2021 highs. Divergences are present but not effecting price just yet.

The weekly charts show more divergences on the $SPY and $QQQ as they put in their first real down week since this push off the April lows began. Usually, the first real down week is not the end of the leg, so even if we chop around a bit more, I think both of these indexes have further to go. $IWM is at a decision point as well and it put in the work this week to be the only one to turn in gains. All of this comes with all three in solid RSI bull ranges.

The daily charts are what put on a show this week, right up to the end where buyers pulled out the last minute save into the weekend. $SPY and $QQQ found support in the MA bands, in the end closing above them and the previous breakout level on both. $IWM lead the second half of the week and didn’t really look back helping pick up breadth a decent amount. This led to a nice rotation from some of the big tech high flyers to the rest of the market. Exactly what you want to see here.

$SPY and $QQQ got sufficiently oversold into midday and spring boarded into the close saving the day, but not the week for these two. MSCI rebalancing was pointed to for the late day rally, but some AVWAP levels (not shown) in play as well. None of these made it into new RSI bull ranges, but $SPY and $IWM are nearing the 60 level while $QQQ stopped below 50. Follow through is needed early week for the RSI range shift or more chop would be expected.

Utilities moved back to the top of the RS list to end the week after dropping a few spots early. Energy and Material were the two other sectors trading in and out of the top 3 spots.  After making a run back up to 73 RS, Information Technology took the brunt of the selling this week. It didn’t start off bad for the sector, but once selling in the hot names started, it moved fast and sunk the sector for now. Communication Services and Consumer Discretionary saw the biggest upside RS moves this week.

Moving average breadth hit lows on Wednesday, but never really cleared the board and started building back Thursday and Friday. Apparel & Luxury Goods was a standout this week moving away from its recent breakout level. Real Estate started getting rotation again this week after getting hit by the interest rate narrative in recent weeks.

Building back momentum continues across most of the markets. Health Care improved a little, but remains the only blank sector here. We did see some improvement as the week went on, but didn’t seem to get caught up in the selling as much this week. Let’s see if it can play catch up soon.

This sheet cleaned up quick and now we see where they concentrated the buying Friday. Energy, Consumer Discretionary and Communication Services saw the most new 10 day highs.

Buying Pressure continued into Friday in Real Estate and Utilities with Consumer Staples now added in there. Pretty defensive. The question we have is how much of that was due to the MSCI rebalancing into these underweighted areas. Best to wait and see how next week plays out to make any big conclusions. Pressure was clearly on the buying side though, the only pink even showing up the last two days was Software which turned back neutral on Friday.

These are the spaces leading this new rotation, don’t ignore them. Consumer Discretionary, Communication Services and Energy are perking first. Retail REITs seem to be going with Consumer Discretionary at the moment as interest there is increasing. Transportation should also be watched after being a big laggard recently. If it can put in a reversal here, it would bode well for Industrials moving back into leadership soon.

The rotation out of hot Tech names is clear here, but mainly concentrated in Software and IT Services. While the AI narrative is getting more volatile, it’s hard to say if it is actually cooling yet or not. It isn’t showing in the data as of yet. Many took hits mid week, but the end of week recoveries were notable with many Hammer candles or long tails to end the week at a minimum.  

The Wrap up

This week’s action smells of rotation and not a major reversal. While the breadth is leaking, all the calls for divergences in breadth are right, but maybe still a bit out of place. The idea we get divergences in longer term breadth measures after the initiation thrusts we saw last fall is not only possible, it’s actually how it normally works. The levels are still elevated over the 50% level, so don’t get too worked up on those for now. NHNL & AdvDecl Lines (our other two longer measures) look fine here. This is the type of rotation you want to see moving profits from high flyers to other less favored sectors. This is rotation in a major uptrend. It can be unsettling, but if you can see where it’s going it can help a lot. June seasonality picks up here and things look pretty good going into it. I am fine if Tech takes a break and other sectors take a turn.

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As always, I hope this helps!