Weekly Macro Review

February 4, 2024

Charts That Matter

The Weekly Triple play chart shows the re-emerged bifurcation in the markets in January as large caps $SPY $QQQ continue to run while $IWM lags. The thing is, $IWM is still leading off the October lows even with the pause and barely retraced 38% of that move, but it just doesn’t look good compared to the other two right here. Don’t obsess too much on it, it deserved a rest after the thrusts off the lows. Overall, all three are in RSI bull ranges and none are excessive here while the CFGs are trying to turn back higher as well. 

As we dig into the daily, you can see it was a more difficult week end-capped by strong start and finishes to the week, but the middle was a good bit more suspect with the perceived FED verbal rug pull by Powell at the presser. Small caps took the brunt of the action and did not have the bounce back to highs by the end of the week. This is information. Are we back to the big cap names running away? Maybe. The earnings are impressive in many of those bigger names and it is showing in the cap weighted indexes. RSIs all in bull ranges with $IWM the weakest, but holding. $SPY and $QQQ are playing “above the rim” as Andrew Cardwell (RIP) used to always say. It’s a sign of underlying buying pressure and a strong trend. $QQQ even fired a fresh RSI Positive Reversal on its reversal. Volume was strong on the large caps and lower on the small caps to finish as well. Still pretty solid price action even in the chop.

The 65 minute chart shows more of the choppiness of the week. It wasn’t just the FED raid, but that was the bulk of the hit. It’s notable how quickly it was offset in the $SPY and $QQQ, but $IWM does need to join in soon or we are likely to see the chop continue through earnings season and as more companies try to re-set up and digest their runs.

Power Universe

Before we jump into the relative strength rankings, we should run through the Power Universe breadth. This being a 3,000+ stock equal weight index, it gives us a different look at how the markets are moving. It does follow more along with the $IWM, but can give us a wealth of information along the way, including a deeper look into what segments of the markets money is flowing to. These charts suggest a digestive stage over one of excessive deterioration. 

The RSI chart shows something somewhat similar to the $IWM above, but is still holding its RSI bull range pretty well here as well as the break out above the August highs.                                                                                                                                                                                                                                                                                                                                                            

Relative Comparative charts on the Universe are more intuitive as to what is leading right now between large or smaller names. The universe being equal weighted kind of sits in the the middle. As we see here, versus the $SPY and $QQQ we are seeing short term breakdowns showing the larger name leadership re-emerging here as we mentioned above. Those ratios are still above the November lows, but this says for now, large caps are back in control.

Most of the breadth measures continue to hold up pretty well after the late December and early January drops. Since finding a bottom, shorter and longer term readings are responding well, but the %>50SMA action gives a little caution, while the absolute value is fine for where we are.  We are watching the McClellan Summation and Oscillator closely this week for clues.

The percentage making new highs and lows isn’t giving any screaming signals here, but is good that new lows are not expanding here in the choppy action. The percent making new 63 day highs is giving a better message with its lack of expansion on the new lows while continuing a consistent pace of the new highs reading, another good sign.

Relative Strength Rundown

World and Intermarket

Starting with the wide view, we look at the World ETF RS Leaders and see $ARGT is still on top, but took a break this week as it looks to be setting up for another breakout. $SPY $QQQ are still in the top quartile, but $IWM did drop out with this week’s weakness.   $INDA $EPOL & $EWJ moved onto this list for the week. The Weekly gainers also has US large caps, but the big outperformers were $EPOL and $EWY for the week.

Intermarket and Size & Style

The intermarket picture continues to be set up about as good as you could want for equities. Last week $USO made a run, but fell back this week as $TLT moved up just below equities in the rankings. This was a notable message to me that it gained in the face of the FED message. Friday put an asterisk on that note, but it still held a solid gain for the week on volume when we closed Friday.

As for the Size and Style ETF RS Rankings, we can clearly see that growth is still leading and from largest to smallest. This further supports the idea large caps are back in charge, and while we can hope small caps join in, we can’t count on them and they don’t have to lead for this to continue to be a strong bull run.

Sector ETF by Size

Not to beat a dead horse, but you can look down these lists and clearly see this week large caps outperformed considerably across most of the sectors. Use this when weighting positions over the near term. A setup for small names to lead again after this rest is there, but until people are more convinced of the timing of rate cuts it might be hard to get liftoff and more of the intermediate term catch up trades expected in small caps.

EW Sector RS Rankings

Finally, we will end looking into the EW sectors we build. Health Care continues to lead and not giving up much ground at all with Information Technology next. Industrials continued to gain ground last week. We mentioned them in the Sector Review as a space to watch for rotation. Spotting these rotations are good to see if you are a sector allocator, but even if you are just a broad market investor, seeing the rotation is what you want to see during these choppier weeks. The surprise in our data was Financials with the abrupt turn this week after being a recent leader. We want to watch to see where that goes and if it spreads through and then outside the Regional Banks Subsector.

 

A quick glance into the leading subsectors in the bottom table shows Health Care and Industrials dominate the list. Information Technology putting in a showing here too. Industrial Subsectors definitely showing the most RS movement this week. These should give you some good fishing lanes to dig deeper into as we start the new week.

Wrap Up

We saw more sputtering this week as the markets chopped their way through the week with one big test on FED day. The large caps were noticeably resilient still, while the small cap names struggled more with the FED rhetoric around inflation and rate cuts. That seems more like short term jockeying at the moment and is likely to keep things choppy. So far, it is a running correction for large caps and a sideways one for our universe and the broader markets. Don’t get too caught into the narrow market narrative because from what we are seeing, it is healthier under the hood than what we have seen in the last few years and more than just 7 names are showing great technical patterns and trending action. Currently, the larger names are back to leading which should show where we look for opportunities until we start to see the data change. Unfortunately, there is no way to know how long the chop will last, but seasonality hints it could be into the middle of March, so make sure you are taking that into your plans and really like the opportunity if you are taking it for more than just a trade. Between now and then, there should be plenty of good buy spots turn up if we are patient.

You can find many of these and other charts throughout the power-investing.com site and through our Stocktwits and Twitter feeds @gtlackey and @power1nvesting.com. Anything mentioned is for education purposes only and are not meant to be recommendations to buy or sell any securities. Please see the full disclosure in the footer for more information.

As always, I hope this helps!