Power Snapshots

May 31, 2024

Highlights:

    • Small Caps and the Power Universe move higher with broad participation.
    • Technology was most of the day’s selling, especially Software with some rough earnings reactions.
    • Real Estate and Utilities snap back with strong buying pressure, Consumer Staples not so much.

Two of three down on the day and bringing the back test to fruition for the $SPY and opening up for the $QQQ. The MA bands also come into play on both in similar levels while the RSI bull ranges are still in good positions. The surprise on the day was $IWM and breadth pulling a strong rebound from the last few days leakage. It also reversed RSI well above 40 for now.  

On the 65 minute we see $QQQ get dragged into a bear range on today’s weakness, but closed on a volume shelf with CFG oversold. $SPY looked weak while $IWM divergence is playing out. Just like at the lows, the $IWM left us hanging as the bull divergence rose into a RSI negative reversal by the close. If the pattern gets run over in the morning, no problem, but it’s just as possible $IWM reverses here again and the divergence just turned out to be a detour for now. It is the first one on the books so far. It is true you usually have less detours before a divergence works versus bearish divergences at tops which can feel like they last forever, but it can often be more than one printed divergence. 

Utilities was a leader today and moved back up to the top of the 3mo RS rankings above Energy and Materials. Information Technology was the only loser among the 11 sectors, but it carries enough weight in the $SPY and $QQQ to hold them under water. Our universe put in a solid day of .8% overall. I have been pounding on defensives and weakness. We can see Consumer Staples was a laggard, but the other two proxies, Utilities and Real Estate were the top performers with some tailwinds from the bond strength today. Overall, most of the sectors were in a fairly tight range of returns as buying was spread out; pretty much anywhere but Tech and Staples.

Price action today cleaning up some mess made earlier in the week. 

Highlighted prices are spaces that remain in good structure. Always check the chart if the price and Number are close, price still could be within the bands even if under the Number, but trending above the number is what we look for. In Tech you see two camps, Hardware & Equipment and Semiconductors still strong with Software and IT Services struggling. Look outside Tech and there are plenty of spaces still working.

Yesterday we mentioned entering washout mode. That didn’t mean we had to reverse yesterday, but unless we were dealing with something much larger, the reversal would be soon. How far it goes, nobody knows. Those clues will come along the ride. Consumer Discretionary stood out after lagging for a while as it showed up in the RS movers above as well.

Real Estate and Utilities got a lot of the buying concentration, but other subsectors were also getting attention. Household Durables has been pulling back recently, but saw a nice morning star candlestick pattern today. The link will take you to the page to dig deeper. Industrials also found some broad buying today after some underperformance the last couple of weeks.

Green shoots in a few spots.

Sellers lost their grip today on the broader markets and concentrated on Information Technology after some less than positive earnings reactions. Software took the brunt, but there was still definitely selling under the hood. It’s just that, right now when buyers do show up, the sellers have a hard time competing. This is fairly normal in strong major trend as we have now.

The Wrap up

Buyers started coming back. It wasn’t enough to totally overwhelm the sellers, but they did have a solid edge on the day. This didn’t show in the $SPY or $QQQ, but once you take out the biggest names, there was a lot of buying going on elsewhere. That is not what bears want to see. We are still in a chop zone where both sides are battling to get an edge here. Sellers don’t seem to be capitalizing again on their opportunities for more than a day or two before buyers show back up. This suggests the larger trend is still there, just resting. It’s summer now, so participation will slow down, but volatility might not.

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As always, I hope this helps!