Power Snapshots

May 30, 2024

Highlights:

    • Back Test is upon us for $QQQ and $SPY
    • RSI bull ranges holding, $IWM likely a hard test soon
    • Defensives taking the brunt again, but all got a taste of the selling today except Specialty Retail and Telecom

A gap down started the day ugly and we never really climbed out of the gutter leaving upper shadows on all the daily candles. $SPY is finally back testing the breakout and $QQQ is reluctant to join. $IWM already gave it up, but it never got the breakout in the first place, so it is in more of a rejection mode. This week’s hard reversal in interest rates and bonds isn’t helping the little guys at all. $SPY and $QQQ remain in strong bull ranges and above the MA bands. Testing either of those wouldn’t surprise us at all if sellers want to push the issue. $IWM has a big gap just below that is on the docket on any further weakness. How we act at these levels, if we get there, could be good clues as to where we head next.

On the 65min level, $QQQ is the only one really holding a stronger structure in the RSI bull range, but any further weakness will likely test that. Two of three in RSI bear ranges on this level puts the burden of proof on the buyers in the short term. $IWM has been the weakest and is seeing a potential divergence with CFG revisiting OS and the last hour candle turned up to form the pattern. This one needs a strong candle to start the day for this pattern to play out, that one little candle just isn’t enough to be comfortable with. A weak start and strong close would catch quite a few off guard after the last two days and going into the end of the month. I can’t say it will happen, but it would fool most, and that is often what markets like to do in these little shakeouts.

While there were no good performers today and the ranges were fairly tight, Communication Services and Information Technology came out on top and gained the most RS points over the last week with Energy right there too. Defensives are the most defensive here from an RS standpoint and have been getting hit hard in this selling.

We are starting to see some oversold short term moving averages, still mainly concentrated in Consumer Staples, Real Estate and Utilities, but spreading to a few other spots. Basic Materials might be worth a look under the hood as it is showing oversold readings on the short term moving average measure, and still strong readings on the long term measure. This disagreement will favor the longer term when markets are in an uptrend.

Most subsectors have come out of trend and are now below the Number. This just brings things back to a more neutral spot. That is not to say there aren’t areas to look at. Apparel & Luxury Goods has been a standout recently in Consumer Discretionary and is now trying to drag Broadline Retail and Specialty Retail with it. The most oversold CFGs go to the defensives which are on the verge of losing their RSI bull ranges here. 

Now we are getting somewhere as far as a short term washout. If this is a minor pullback, we are near the end. If it’s more, we could be just getting started.

There weren’t many places to hide today, pressure was all in one direction.

Buyers still not back from vacation.

Sellers are taking advantage of the open floor space. They even got volume up a bit today. Focus on where the lows aren’t spreading out to the right. Energy, Communication Services, Materials and Information Technology (ex-IT Services, it’s been a dog) standout in the storm. 

The Wrap up

More selling as buyers still aren’t showing back up. Sellers are pushing and making some headway here showing mostly in the small cap spaces, but it’s been more than that. The breadth has been narrowing over the last week or more. This is giving larger capitalization indexes the edge right now as a small group of mega caps are helping prop those indexes up. I will be paying most attention to the 65min charts here as many of the daily are still holding up well, but look to be coming into an important juncture. The short term readings are getting washed out here, so any broad reversals could be considered if the RS is in the space with a tight out just below the reversal lows. You need to see positive price action materializing on a lower level and buyers showing up with some persistence before committing here.

This information is for educational purposes only and is not a recommendation. Please see the full disclosure in the footer.

As always, I hope this helps!