Weekly Macro Review

February 11, 2024

This week in the markets was more about continuation for most spaces than it was about rotation when looking at the sector level. The most notable action was in the Small Caps waking back up at an important juncture.

Charts That Matter

The weekly view here is anything but bearish as the $SPY and $QQQ continued to climb. They are getting a little vertical, but indicators suggest there is still room if they want it. This is a big OpEx again this week which often goes with the trend coming in and bodes well for this week, but the week after can show a short term change. Putting that together with weaker seasonality picking up next week, it wouldn’t be a surprise if the big guys take a rest. The interesting question is, what will the $IWM do? Everyone knows it has been lagging, but this week’s actions in that space outpaced all the rest at an important spot. It put in a strong candle pattern. Will it pick up the baton and run with it? That was my question last week and it ended the week set up for just that type of rotation. Bullish trends are built on rotation; it doesn’t always have to be sector based.

The daily view also suggests on those big guys there is a little more room before momentum gets extended. The CFG in the bottom window serves as a shorter term oscillator companion for the RSI. This measure starts to get overbought over 100, but I have seen them as high as 140+ on strong surges. The divergences we see have been just detours so far. Eventually one will work, but in my experience they work better when the final peak is closer to or below the 60 level on RSI. Kind of like the old failure swings we learned in our TA courses. Price will always dictate the trade, but these indicators can give us alerts to be looking for changes in character of the price action. $IWM has plenty of room, cleared a level on Friday on volume and is ready to see RSI head back over the 60 level. Widen your view and you can find plenty of opportunities out there.

I was going to leave this one out this week, but I wanted you to see what can happen when the RSI goes on Nitrous. Many have heard me say that in the past, so I thought I would explain it here and show you what can (not must) happen. Hitting the Nitrous in a car is about getting a sudden acceleration when everyone thinks you are out of power and “topped out,” if you will. On my charts, hitting the Nitrous is when the 9 simple moving average OF RSI (orange line on RSI window) move above the 60 level. Usually, RSI is up closer to 70 or above, and everyone is talking about overbought and it being too late to enter. They obviously didn’t see the Nitrous button… As we can see in all three of these charts now, including the “weaker” $IWM, are on Nitrous. Take a second to go back and look when that 9sma of RSI crossed the 60 line, where price and RSI were at the time, and where they are now. Those are nice gains from my perspective. Now, go back up and look at them in the daily and weekly charts above and find when they hit the Nitrous. Technical analysis works on all time frames. Of course, nothing works 100% of the time, but it has a pretty darn good potential reward if you have a good risk management strategy to go with it.

Power Universe

This week was solid across the board for the markets. Our universe looks to be setting up now that Small Caps are participating. All week I kept hearing about the bad breadth, so I posted a chart last night and wanted to put that to bed in this section. I understand we have been seeing some weakening in breadth since the start of the year, but look at this index and small caps, there is your answer. However, both of those have clearly been consolidating, not falling out of bed. Breadth never really got that bad and any bad breadth signals we got were at the start of January. As of now, it is not something to hang your bearish thesis on, go find something else.

The RSI chart has held the RSI bull range and only dipped under 50 when price was back-testing the December breakout level, both held just fine and have made higher lows since.

In this chart, we are just looking at the three longer measures that we follow. The NHNL Differential which came in at 288 on Friday, the highest reading for 2024 so far. This is new highs minus new lows, so even if new highs stalled a bit early this year, new lows couldn’t capitalize on it, suggesting digestion. It’s not just that indicator, the AdvDecl Line and the %>200sma are giving a pretty similar consolidation versus major deterioration. That deterioration could happen, but its not showing so far. We know the mega caps are running hard right now, that is why we use equal weight to go with our work, it gives a better broad market picture of the state of things. These are not giving any dire messages here, so don’t listen to the narratives, their agenda is showing here.

The normal breadth chart we look at here continues to show shorter measures improve (blue arrows), while the intermediate and longer measures are trying to turn back up here and showing their own pivots. Summation isn’t pivoting yet, but has flattened this week while the McClellan Oscillator moves back over the flatline.

Here again, we are seeing decent action in the short term measure this week with continued solid reading for the longest 63day readings. It fits where we are, there is no need to read anymore into it.

Relative Strength Rundown

Global Relative Strength

The US markets are all still hanging here in the top RS Rankings list. $IWM jumped back in with this week’s performance, but overall it’s hard to look too far outside the US with so many opportunities. That said, if you want some variety, here it is. For us though, until relative performance improvements are prominent, there his no big rush to focus too hard here.

Intermarket and Size & Style

Equities remain at the top of the Intermarket list, that is enough for me. However, we will keep an eye out here for any interesting changes, like $USO with its second trip up in the top half of the list in the last 3 weeks. That could be significant if you are looking for rotation into Energy names after they have missed most of this current move and enter a stronger seasonal period here. Bonds should also be watched with $TLT having another difficult week, but it didn’t break the January lows yet. How it reacts around this area will be important for the week. A hold here could renew confidence in the idea that the FED is offsides right now and would likely be a net positive for the markets near term.

Size and Style list showing a little shakeup this week, but nothing drastic. Growth is still leading, but the large to small mantra got cracked with small and micro caps moving up the ladder, especially the growth versions. Mid caps lagged this week, but not something we see that often. It is one of my favorite spaces to fish in the markets on balance.

Sector ETF by Size

A quick rundown of the Sector ETFs ranked by size and we see the order changes some as you go down in size, but the Market Cap weighted saw very little RS change. Basically, Industrial passed Financials, which shouldn’t surprise anyone. In the EW list though, it is worth noting that Communication Services was the worst performer on the week contrasting its leadership position in the Market Cap list. Lastly, let’s take note that while it didn’t make the top performers for this week in the Small Cap list, Energy was a close third here on weekly performance while remaining at the bottom of the RS rankings. Energy will be worth watching next week to see if it can spread through the other size lists, or if it is a another one off.

EW Sector RS Rankings

In our EW sector world, there just wasn’t a lot of rotation this week, more follow trend type action, outside of the continued leaking of Financials. The top RS names line up well with what we have been focusing on the last three weeks in the Power Sector Review where we dig deeper into this subject.

 

There was a little more rotation under the surface that didn’t reflect in the sector list, which can further narrow the fishing lanes for this week’s research. Here are the relative strength leaders for the week. In the Power Sector Review, we will go a little deeper with some different views of the subsector space that we like to see before making any big decisions. Notable here in this view is the big price and relative strength move for Semiconductors after some short term weakness recently. This leading subsector gave you a quick entry opportunity on the dip in January, and even another one on the retest to start this month. It never broke down and is now challenging the highs. See Semiconductor Page.

Wrap Up

Markets marched ahead this week and nothing popped up that alarmed us. The worst thing we can ruminate on is the “too high” attitude, because it can always go higher than you think. That is what we are hearing a lot of now in the narrative camps. Corrections are part of the normal market action and can come on anytime, but momentum like this usually does not disappear overnight. In bull trends like we are seeing, when the momentum does move, it rotates and doesn’t leave the field until it feels the game is over.

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!