Weekly Macro Review

April 28, 2024

Charts That Matter

Markets finally put in the reversal a little later than expected. That should have been expected…markets often take a different path to where we expect it to go, but often still gets there. The first big thing we see is the rebounds were piercing patterns. The only one with decent volume was $QQQ, which is also not that much of a surprise. So many expect the volume off a reversal to be high immediately, but that rarely happens. More often we see some dipping of toes in the water that builds to a plunge in the pool if others join in. We are about at our ankles here, not quite ready to take a dunk before the FED decision comes into play. That said, it showed buyers are still hanging around, just waiting for a “reason” to get more involved. The weekly charts show RSI Positive Reversals, in RSI bull ranges and above the rising MA bands. That is not a negative setup. It can fail, but the higher time frame gets the benefit of the doubt as we flip through the charts. The daily charts did shift into RS bear ranges and so far the bounce has only brought them back to the top of the 50 level. We need them back over 60 and above the MA bands before we move further into the pool. Then we drop down to the 65 min level and see the shift to RS bull ranges on the initial 2-3 day rise that was challenged and held the RSI bull ranges (RSI > 40) on the Thursday attempt to knock buyers back out. We need to see follow through on the weekly reversal and it would be nice to see the volume start to pick up if it does. Another test of the lows isn’t out of the question, not the top scenario right here, but if it does happen, we will see the shift back in the 65 min chart first and likely before the daily RSIs move back over that 60 level.

Bonds via $TLT had a second indecision week creating a nice divergence in the RSI and extending one in the faster CFG while the weekly put in a Harami type candle after last week’s Hammer candle. That is a lot of indecision right at the RSI bull range test. It doesn’t have to reverse, but if the FED is any more dovish than previous meetings, it looks ready to bounce soon. If it does, it could save the Weekly RSI bull range and see its first test in the 91-92.50 area. I added the Bond Size and Style list to show performance. One other factor that keeps us from being too bearish on the markets is the RS Leader in bonds over the last year has been $USHY, high yield bonds, which would not be normal if we were about to have bigger troubles in the equity space.

After diverging from price 3 days prior to the lows, New Highs reappeared this week. The 10day highs showed the most life, which we would expect, but during any follow through we need to see it expand back to the 21 day readings pretty quickly. It’s okay if the 63day lows takes a minute to respond. We also look a lot at how the downside played out. We already discussed how the lows starting diverging across all reading early, but I would also note the absolute readings along each category. It is very noticeable that all of these readings were greater than the first leg down last summer, but stopped right near the ultimate low readings on the 10 day and 21 day but no where near the lows on the 63 day measures. I think this shows two things. First, how much more the markets were actually moving sideways before the pullback happened elevating the shorter readings on the swift drop while seeing the 63 day hold back a little. Second though is divergence was telling and drastic after the big down day. We lost the perceived support levels, showing institutions were rotating to other spaces during that mini panic, or maybe just a stop run to take advantage of. Understanding our view that this is still a one foot out the door market, we expect institutions to continue to take advantage of the panic selling when it happens putting a floor under things or at cushioning the descent until we find the support zone that does really matter. We may have already found it for now, but my internal clock says there is still a chance for this malaise to play out a few more weeks. Down or sideways is the question.

Power Universe

I probably went through more than I should in the paragraph above. Maybe looking here I can better explain in depth. The shift back to an RSI bear range took maybe one or two more days than I like to see to call it a spike in a bull range. OpEx in there might be an explanation for it getting stretched out, but none the less, we now need to see RSI get back over 60 to be comfortable the bull trend is back on track. My chart here looks like it is still a big sideways move that could even be called a breakout back test. A deep one, but it hasn’t ultimately failed yet. The 45ema on RSI can be both resistance and its own messenger. As long as it stays above 50 here, we still see opportunities leaning to the upside, especially once the RSI gets back above it. The range shift back to bull range is above the 60 level, but there are things to watch for along the way. We have a larger back test a bit below the 38.2% retracement level if we do decide to fund a lower level of support. A move there would still leave us in a larger uptrends if buyers show up, and I expect they would from what I am seeing in the data so far.

The breadth numbers are still holding up pretty well on the larger time frames, the NHNL popped back positive early week and stayed that way everyday, even on Thursday’s bear raid. %>200sma is still in the 60s and the AdvDecl Line isn’t dying either. The McClellan Summation Index flattened out above zero and is just below the signal line now as the McClellan Oscillator slipped back above zero the second half of the week. These are all incremental positives for the broader markets. They still need follow through, but we are set up for it if they are in the mood to show up.

Relative Strength Rundown

Global Relative Strength

The world ETF readings for 3 month relative strength shows a leaderboard absent of the US indexes for another week. For those who want a percentage overseas for diversification, this can help you stay in the right regions or countries. Europe is hanging in there, but your bigger movers were places like China, Argentina and Greece. China has my eye the most after a longer period of underperformance. It’s worth looking deeper to see if this reversal is setting up a good technical opportunity as the RS scores are about the hit the 40 threshold from a long period below that. This is a signal I often use for changes in character worth exploring further.

Intermarket and Size & Style

The Intermarket rankings are still not inline to favor equities as commodity spaces continue to rule the roost. $CPER Copper has stepped up this month and is catching up to the rest of the metals space swiftly. $SPY is the only equity index above the midline, that needs to change for more confidence in our view. Three of four in the lower half of the list is not a good look. $QQQ was the RS mover this week, and retraced the most on the best volume. Don’t count them out.

The Size & Style RS list still leans top down and to the value edge, but the weekly performance disagreed. Even if we aren’t done with the correction, weeks like this give information the buyers are still there when they want to take their shots. The same growth tilt shows clearly below as well in the sectors.

EW Sector RS Rankings

Sectors hopped right back on the risk train with Technology and Consumer Discretionary leading the way while Utilities and Consumer Staples couldn’t hold their 15 seconds of spotlight the moment people felt a reversal might be in. Again, even if we go down further in this correction over the near term, this type of action early in a larger uptrend (yes, I think it is early in the grand scheme of things) is good for us to see. Oh yeah, and don’t forget about commodities, they are not done yet…

Wrap Up

The week had a lot of good information that was helpful for market structure. Not enough to call a new leg higher yet (well, I don’t really make those calls anyway, just follow the data), but I do like what I am seeing overall. This coming week should give a good bit more information on the bounce attempt and its staying power. We have a list of things we look for during these bounces and we are monitoring it for hints of both strength and weakness under the hood. Right here, there isn’t enough evidence to point heavily in either direction yet, but when it comes it could be pretty swift as the one foot out the door market constantly feeds both fear and FOMO when it senses comfort or complacency.

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!