Power Snapshots

June 24, 2024

Highlights:

    • Mixed week with $SPY and $IWM gaining and $IWM losing. Power Universe eked out a gain.
    • Short term breadth actually improved most of the week, even on the difficult days.
    • Real Estate becomes a top sector as it holds tight to the interest rate narrative.
    • New Lows contracted while the Power Universe moved sideways all week.
    • New Highs didn’t expand much until the end of the week and only in very select spots.

The majors started the OpEx week with some strength, but as the week went on a little air started coming out of some of the big AI names as well as other Info Technology larger names. It wasn’t enough to turn it negative for the week, but it did lay down some interesting groundwork for the week to come. There was a lot of option premium that rolled off this week giving a chance for some softness into the end of the week/month/quarter. This would not be unusual at all for June. $SPY was right there with $QQQ, but didn’t give back as much due to the broader nature of the index. $IWM started the week on the defensive and put in a bullish engulfing pattern right on the top MA Band. Some follow through from the little guys this week would be welcome as the large cap indexes rest. A little worry in the large cap indexes while the markets broaden out underneath the surface would be perfect, but right now that is just a wish. We have strong uptrends in two of the three and the third one is not ugly, just treading water recently, so at this point any weakness would still be considered a counter trend here as breadth remains neutral overall.

$SPY and $QQQ daily saw RSI pivot down from elevated levels; this doesn’t mean bearish, but could be consolidation or pullback to work off some of the momentum. So far, they haven’t even come back to the 9smas I put arrows by. If a pullback comes in these as some of the high weighted names rest, I could see a trip to meet the MA bands on the way up as the next spot as we are pretty extended here. $IWM put in a reversal that kept the RSI bull range in tact on the test. If it gets follow through early week, it will make sense from a rotation view as profit taking from the largest runners spreads out.

Even with strong buying off the lows, it was a mild retracement off the previous peak that stopped things. We need to get and stay over that early week to look for some follow through. On the other two, we flip the Fibonacci retracements the other way and see where any pullback might want to head. 38.2% and 50% zones are where I would be interested in getting a little more aggressive if we see buyers showing up. A pullback to those retracements could be as narrow as the rise due to the concentration in the mega cap winners, so don’t be surprised if we see a broad index pullback, a lot is still working under the surface through rotation.

The sector world was still a bit of a mess this week, but with the Power Universe eking out a slight gain, the negative tilt here is interesting. Only two sectors showed gains, Financials and Consumer Staples, and 4 of the 11 were down over 1%. Real Estate almost made it green as it jumped up to the top of the RS rankings list. This is a good case study to show why we use RS and not just price action alone. Over the 3mo, Utilities have performed better than Real Estate on an absolute basis, but when we use our RS overlay to weight the performance during that time period, the reason Real Estate takes the top spot is the distribution of returns are showing decidedly better returns over the more recent price action.  Real Estate is something I have mentioned for a couple of weeks now and it has performed well; now I am seeing many prominent names in the space show big weekly patterns being challenged as the whole space improves with the expectations for lower rates. Financials are making the biggest RS moves this week and could be seeing rotation from the profit taking in Tech. On the losing end, Health Care took a big hit for the week pulling the RS back near the bottom. This doesn’t show in the $XLV or $RSPH since they are both large cap, just one is equal weighted. Our equal weighted sectors are all cap and often show a different view of the broader picture sector or subsector picture.

Real Estate and Financials seeing the best positioning while Utilities and Materials the worst. 

RSI showing Real Estate through REITs instead of services and then a lot of specific subsectors to take a glance at. Information Technology is also highlighted with Semiconductors and Hardware & Equipment pulling the weight for the other two on momentum.

Still a lot of pink out there. Materials and Utilities taking a lot of the brunt. Keep an eye on IT Services and Software, they have been the drag on Tech, maybe they get attention now that that the other two might see some profit taking. 

Monday was the only real pressure this week, but pretty quiet for an OpEx week. 

Short term breadth measures improving throughout the week in many spaces, but nothing to get excited about yet, just notable.

 

It has come off the worst levels, but we are still making too many new lows and too few new highs for anything to get going in the broader arena. We are seeing slight changes on both of these measures showing improvement, but still a long way to go.

The Wrap Up

This was still a positive week and breadth climbed most of it. OpEx shenanigans were present, but not really as bad as many in the past. The profit taking in Information Technology was due and has further it can go, but buyers love the space, so I am not sure how long they will be able to resist before coming back. Hopefully long enough to let some of the best charts set back up for another leg higher. While we wait on these big winners to rest, that money is likely already spreading out through the markets. Those who are getting those flows could provide good sources for opportunity in the near term. Real Estate has some great charts in it when looking at the REITs over RE Services. Communication Services is shaping up well with big names like $GOOGL set up. Consumer Discretionary with spots like Apparel & Luxury Goods leading and Diversified Consumer Services and Hotels, Restaurants & Leisure are perking. Consumer Discretionary also has $AMZN on the verge of a big breakout and $TSLA trying to put in a reversal. There is still a lot to work with outside of Information Technology and the Majors $SPY and $QQQ. That said, make sure you are getting the setup you want. Summer is never an easy time to trade as liquidity is always lower, ushering in more volatility, and failed moves getting reversed quickly.

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As always, I hope this helps!