Weekly Macro Review
May 16, 2022
Triple Play Review
We have potential, but follow through is a must this week after the hammers closed on Friday. All three were negative on the week, but those candles put everyone on notice. That is all it is for now, notice. heads up, alert; however you put it. Price action came down and tagged some important levels and finally found buyers for now than an hour. RSIs continue down in their bear ranges making new lows for the move. This is still a strong downdraft on this level. Other than the hammer candles, the only glimmer here is the CFG divergences that are hinting, but not even complete there. As we go into OpEx week we could see more relief or a lot of chop as everyone squares or rolls their positions on what is said to be a heavy expir4ation in front of us.
Just small flags of change, more to prove.
Moving down to the daily level, we aer in a clear downtrend here as well. RSI bear ranges and below the falling MA bands. Short-term divergences were negated, but longer ones still persist. CFGs have been diverging, so RSI might not this time. The daily reversals at the end of the week were strong, but didn’t produce huge volume. That should not surprise anyone. Rarely do you have extremely strong positive volume out of a downside volume climax. Sounds good, but that just doesn’t mesh with human psychology. Volume will build as the move progresses along with conviction. Too early for that at this point. For now, we just follow progress.
Even down on the intraday level no big changes to the picture yet. The move off he lows was nice to see and a potentially good start, however it hasn’t even shifted the intraday RSI back to the bull side yet. They are testing the MA bands which haven stopped going down for now. Any positive early week should shift these back to RSI bull ranges, unless early weakness pushes the RSIs back below the 40 level and re-confirms the bear range. The gaps above are a prime target or milestone. If we can get through those it should curl the MA bands higher and change the short-term momentum picture. Or it will fail as it is a larger bear trend. Hate to be blunt, but that’s where we are at.
World and Intermarket
In the world view this week we look at the gainers for the week as well as the RS gainers and losers. Relative strength with some major European countries starting to move up. In the top gainers, $EWZ pulled back to 30 quickly and is attempting to put in a reversal. There is a lot of rotation in this mess. Not nearly the themes we saw earlier in the year.
Intermarket is also seeing more rotation as it seems bonds have had enough for now and are working their way back up the list. They are certainly not where you want to see real leadership. Last week we even saw $UUP on top briefly, neither of those at the top of the RS rankings is ideals. At least with Commodities on top we have decent equity proxies to concentrate on. With the exception of $DIA, equities continue in the bottom half which is really what we look for in change here to improve the markets outlook.
Size and Style isn’t doing much. A little churning, but Value still all on top and growth on the bottom. If you look at the weekly returns it was still worse in growth land even with the reversal, so there is still a long way to go to improve the overall picture.
With bonds trying to get up off the mat over the last week and heavily outperforming equities, let’s look at that rankings list. We call it size and style, but duration and style would be more accurate. The rankings are still dominated by the short maturities, but the weekly gains reverse that. The velocity is likely to reverse for a bit if this continues. All should benefit, but longer will move faster, in both direction. If we do see continuation it could help subside some of the current inflation rhetoric for now.
The Power Universe index broke down and put in a solid reversal all this week. Follow through back into the previous range above is key for more progress. A rejection there wold be no good for the bulls. RSI burnt the short-term divergences here (failure of a historically solid signal is noted), but the longer term ones are holding in at this pivot. CFG has also put in its second near term divergence and didn’t seem to want to dive with price on the last move down. Clearing the blue line is a great start, but the green one is more important in reversing the larger downtrend, but one step at a time.
- Longer Term:
- NHNL Differential big spike in negative reading pulling the MAs further negative as well. End of the week they all but disappeared, but the damage is done
- Advance Decline Line making new lows
- %>200sma in the lower quadrant. Next signal is a move back out higher.
- Intermediate Term:
- %>50sma back in the lower quadrant. It made a big reversal end of the week and on watch to move back out for signal.
- McClellan Summation remains on sell and making new lows for the move this week.
- Shorter Term:
- %>20sma moved out of the lower quadrant for the second time this month after making a lower low.
- McClellan Oscillator is diverging here on it own.
- Breadth Thrust put in another hard pivot and shot back to 50 nicely.
- PMNLC is diverging on the short end but not on the long end for now. Now its time to see if we can get a surge in new highs here or not to help gauge staying power of the move.
It was still a tough week across most spaces. Consumer Staples was the only green on the week. Utilities was just under the flatline along with Communication Services which was the RS gainer for the week as higlighted. Materials also deserves a mention this week as the RS loser. This leader has taken a hit in recent weeks with the metals weakness. Industrial Metals are near a potential support zone here, so it might be a time to making plans in case it holds and reverses back higher.
It was nice to see some relief at the end of the week. Buyers have been on strike for a while and finally found some levels they saw enough value to step in a little. The ultimate getting your tow wet as the volume was not expanding as prices did in most areas. It was a good start and came about when we might expect going into OpEx this week. That will add volatility to the mix and while buyers showed up, they haven’t proven anything yet. All levels are still in RSI bear ranges and at or below the MA bands. We need to see that starting to change along with breadth improvements to get too excited. I put out 3 exploratory posts this weekend that can help lead you to the themes that are participating best after last week.
Also look for our Power Sector Review for a closer look under the hood. You can find these and other charts on our Stocktwits and Twitter feed @Power1nvesting and throughout this site. 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!