Weekly Macro Review

April 21, 2024

Charts That Matter

After ending last week with the 90% down day, we came into the week expecting an immanent bounce; then Monday was an 80% down day which raised the probability of a strong retracement within days, and nothing came. This was not what we expected or see in most of these swift selling situations, especially in a bull market, but that is why we work on probabilities and not certainties. The potential implications of this action could be a wide range of course. It could mean the bull market is over for now and a larger down leg is here and this was just the first leg, or it could just have been OpEx took over once we saw the initial dive forcing position adjustments exacerbating the situation. Options markets have gotten so large, they are having more and more sway over the stock markets. With the OpEx being over, most of that pressure has been relieved for now, opening the door to a larger bounce. I expect it was just delayed. When it does materialize, buyers have a lot to prove at this point.  

I usually don’t post all three triple play time frames, but this week it made sense. Moving from the Weekly down, we see sellers put in big candles finally taking down the large cap indexes and putting $IWM below the weekly breakout zone and right into the MA bands. All of this takes place with them still in decent RSI Bull Ranges and CFGs not oversold. The daily went into waterfall mode this week with a little back and fill as buyers tried (not very hard) to hold the line with no success. This cascade down killed the daily bull ranges and started closing gaps along the week. CFGs are all oversold below zero and RSI are all new lows we have seen recently. However, realize that the first visit of these levels was not the ultimate low in any of these instances. Those were more in a downtrend and this one comes in an uptrend, so the outcomes can be different. Finally, we move down to the 65 minute charts which show the cascading price action, but it also shows the divergences have been building since the first big break when Monday’s gap failed. This oversold setup plays well into the bounce idea and we are stretched enough it could be very reflexive, at least retracing the waterfall portion quickly. Once that happens, we will see if buyers can push beyond that point or is it used a another opportunity to sell.

Bonds did not help the equity cause at all this week by gapping down Monday and just barely closing above that opening gap by Friday. It was a fight and buyers did show up a bit during the week, but so many levels have been violated, the buyers have a lot to prove before I would trust this. The weekly is trying to hold its RSI bull range here and put in a short term capitulatory looking doji on big volume this week.

Another piece of evidence this might be closer to the end than the beginning for now is the new highs and lows chart. It put in a low on Monday and improved every day during the week, even early when selling pressure still looked pretty bad. I still think short term is set up to move back higher, but we need to be ready for it to fail or succeed and not take one side or the other until the data fills us in.

Power Universe

Sellers didn’t seem to let up this week. I was off, not expecting the follow through to be so swift and violent here. I should have had it in the cards considering OpEx this week. While normally volatile in both directions, OpEx weeks have the ability more and more each year to grab to flow and push that volatility in one direction catching many offsides and producing this. I am sure it wasn’t the only force pushing on this week’s price action, but I do think it was a big one. Our EW Universe lost the MA bands to start the week and the RSI bull range wasn’t far behind. CFG dropped into oversold territory on the move as well. It is interesting that we found some short term support at the level the RSI peaked at back in December. Andrew would often talk about using the RSI (momentum) high as a support and resistance versus the price high. We will see if it turns out to hold or not. If not, I would expect the green box below on the chart would be next. That is the previous breakout level and the 38.2 retracement level. I would also say, even if we do bounce here, the red box above is where I expect buyers to run into some trouble. If buyers can move price over that box and hold it (not whipsaw), it would bode well for the major trend continuing now. If sellers reload in this area and overwhelm buyers, then again, I think we visit the green potential support zone below into early May where seasonality picks up. The RSI bear range shift puts sellers in control until proven otherwise.

Breadth was a bit divergent this week improving from Wednesday through Friday. Many of the generals got taken out pushing the indexes down while the equal weight spaces started to get some footing. Let’s see if that classic signal of taking out the generals last plays out here or not. The 10sma on the NHNL just turned negative for the first time giving another notch on the longer term sell signal, now we need to see the 30day moving average get down there to get a longer term trend change signal from the NHNL. Other longer and Intermediate readings aren’t terrible, but the short term one got sufficiently oversold to see some back fill here. 

Relative Strength Rundown

Global Relative Strength

The world kept moving this week, without the US indexes. They can do it. But it wasn’t like many were running hard other than $ASHR as it is working on a weekly flag after a move off the lows to start the year. It is still a major downtrend, but if the flag can break higher here soon, it may be a signal for change. $TUR has also been a name to watch lately and eked out a small gain again this week. The rotation on the RS movers list as notable. $SPY and $QQQ making an appearance on the RS Losers side with big down weeks. Only $VNM and $EWT lost more as they were caught in the semiconductor rout. Overall, it was a heavy week with a few spots that came out ahead. That is not unusual when our markets are having a tough time.

Intermarket and Size & Style

Commodities continue to lead here as all but $USO and $DBC (almost half oil) put in solid weeks. Copper was the big mover with Agriculture right behind it. This won’t help the inflation narrative, even if it ultimately doesn’t have as big an effect as many feel it will on the interest rate picture. It will have an effect, but it won’t stop the FED from lowering if they want to. What it is really doing now is keeping the Equity ETFs firmly in the bottom half of the list leaving the caution flag up for now and telling us to stay focused on commodities until we start seeing this change. $QQQ and $IYR were the big drags on the downside this week.

Value perked back up this week as markets got hammered and some defensive names finally got some defensive play. Consumer Staples, Telecom and Utilities all saw buying increase throughout the week as sellers backed off. This defensive action after the markets slid into oversold reeks of desperation in the short term. We will have to see if they get spit back out on a bounce or if this rotation is a more intermediate term warning.

EW Sector RS Rankings

As I already mentioned, the sector lineup saw Utilities and Consumer Staples continue to climb the ladder after we point out last week they were making some progress at least relatively. While this was happening, Health Care and Technology got whacked this week putting that extra weight on the $QQQ. A closer look at Communication Services might be in order to see if it was just Telecom that pulled it higher or if there is more going on there under the surface. It was one of the first sectors to rest after a strong move last year. If it starts heading back higher early, it would be a nice place to look for opportunities this week.

Wrap Up

There was a lot of selling this week, but under the surface the rotation was alive. It may not have been in all the sectors we want to see, but it was good to see weekly gainers and not just a bunch of sectors that lost less than the rest. I am still waiting for that bounce for my next set of clues. I can’t wait forever, so if we don’t see it this week, I would get much more worried about the message the markets are sending us. I suspect we will and then we can read the messages Mr. Market sends along the trail.

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 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!