Weekly Macro Review
February 26, 2022
Came into the short week on a bit of a ledge in the indexes and they definitely pushed over to start the week as the war drums got louder. Wasn’t just those drums taking a beating to start the week, the markets were also getting banged a lot. Once the invasion started on Wednesday, the futures started weak Thursday and built back from there with piercing candle patterns. Friday brought some follow through action pushing $SPY $QQQ slightly positive for the week. $IWM was up most at .65% on the week while $DIA lost .76% suggesting it was the largest names that took the brunt this week. These weekly returns don’t even begin to tell the story we lived this week. After all this it still leaves the daily in RSI bear ranges with work to do. The weekly charts are working their way toward RSI bear ranges fast with CFGs getting oversold too; If this reversal attempt doesn’t hold and push higher here, it gets uglier fast. We enter next week with all the overhead and other caution flags, but we take it day by day as we move into March, always looking for progress or deterioration from multiple angles. We have seen a lot of deterioration so far in 2022, it would be nice to see some progress for a bit, even if temporary. This price action is a start, but will need a lot of help along the way.
Latin America still has a good bit of weight near the top of the World ETF RS Rankings, but losing some luster as the oil run takes a break since the fight started. We have been skeptical of the current leg since last week when the Energy space began to stall. Energy may be in a secular bull now, but its charts were showing some short term fatigue after a solid extension. Brazil epecially, but many of the latin american countries were likely following that extension, so they may need a break here too. Lookng at the RS gainers list below we can see many European periferal making progress this week, but not any of the biggest names in the EU for good reason. Australia and Isreal caught my eye as I did various sorts to see what was going on.
The Intermarket RS ETF view is still commodity ruled, but some jockeying for position this week once you get past USO and DBC (which is majority oil), the rest of the commodities jump in. As mentioned above we entered the week with some skepticism on USO after it was a bottom performer last week and it shot higher out of the gate with the geo-global tensions and went to new highs before rejecting that level on the day of the first strikes. We will see if downside follow through can happen now that the rumors are news. Equities are still having a rough time, but trying to get some traction, however, until all are in the top half of this list, we remain cautious on their ability to be leaders again soon. This week $IWM made the best effort by climbing 32 RS points and becoming the top equity ranking for the first time in quite a while.
The Size and Style ETF RS Rankings list also shows us that the participation is broadening out. While Value is still leading growth handily overall, the Small players have moved up to the top of each side’s rankings. Many of the Generals have been taking hits in recent days and weeks after holding out while everything else fell. Best case scenario for the markets is for that money to rotate back into the broad market. Recent participation suggests that might be happening on a small scale now, liquidity is so low, it seems some of the money is just straight leaving the markets which is what you don’t want to see build. on itself.
Before we jump into the Breadth of the Power Universe, it is worth looking at it first on thee RSI chart below to look at the momentum picture first. In the second chart we go through our breadth bullets and look deeper under the hood of our current situation.
The first thing to note is of course, the RSI bear range and being below the MA bands. That colors the backstory while we look at the potential improvement that started midweek. After getting rejected at the MA Bands last week and falling hard into the retest, Thursday’s undercut and reversal and then Friday’s follow through is a great start, but just a start. This chart, like the $IWM is not actually a divergence to work off, we already saw the long to short divergence progression there. This chart, while seeing a deep back test, so far has a RSI divergence to convergence setup playing out if we can move higher off these levels. Only way we will see that type of action is if we get broad participation which will show up the earliest in the breadth progression we are looking for below.
- Longer Term:
- NHNL Differential on a sell signal & 8ma crossing below 30ma. Slight positive Friday at +58
- Advance Decline Line broke January lows mid-week and closed back above, still lower highs and lower lows for now
- %>200sma dipped back into 30, trying to forge a higher low with price action
- %>50sma fell hard, but also remained out of the bottom quadrant and attempts a higher low as well.
- McClellan Summation was the bright spot that got quashed this week as it crossed down in the heavy and broad selling early week.
- Shorter Term:
- %>20sma slammed into early week, but again held above the lower quadrant
- McClellan Oscillator got hit back below zero, but is not forging a much higher low. not a divergence, but still significant versus the associated price move
- Breadth Thrust got hit back down into the high end of the extreme zone. Turning higher decent clip above the last few times down here.
Breaking the Power Universe Energy remained the top sector and ended the week erasing last weeks losses. It was up much higher going into the invasion, but once it started, oil couldn’t hold the $100 level for now. Utilities put in a solid week an was the biggest RS gainer while Communication Services the biggest RS Loser. While still at the lows, I am also intrigued by this weeks 2nd place performance in Health Care, is it time for an RS turn?
On the Subsector level, the list below shows the top weekly performers this week. All of these outperformed all the major indexes for the week. We expected to see the metals and energy names, but it’s always good to see fresh faces. Utilities and Health Care have been rough recently, but might be worth looking at closer here.
One Final thing to note was the VIX action this week. It has been strengthening recently making higher lows for a while now, but it is worth noting that while it spiked above the upper Bollinger Band, it immediately reversed and closed back below those. Those Bollinger bands are also contracting here and not expanding like they have in most big moves higher, which are accompanied by big moves lower in indexes. Higher $VIX will mean higher volatility and likely more downside action, but this change of character at the highs has our attention into next week.