Weekly Macro Review

July 1, 2024

Charts That Matter

The large cap indexes ended a strong quarter with a fizzle while $IWM perked up right as the curtain was pulled. Luckily, we start a new act today. Maybe not so lucky for the small caps so far today. I review 5 time frames of Triple Play Charts on the Power Snapshots posted earlier. The daily here coming into today was hinting at some rotation to continue to the smaller names. I questioned whether or not it would be a sector rotation or within the sectors themselves. I wouldn’t be surprised if we saw a trip to the MA bands and to close a couple of gaps on the $SPY and $QQQ. Let’s just hope the $IWM can get some of that profit taking and push above 210 sooner than later.

$TLT had a rough week that is now bleeding over into July (I didn’t get the snapshot before today’s candle). It’s right back down to the trendline and retracing more than 50% of the move off the lows. This isn’t a good look, both to end and start the new quarter. Right now, the daily RSI bull range is getting a hard test that needs to hold or we head back toward the lows. This will put a headwind on the $IWM attempt to get going.

We continue to see new lows contracting, just hadn’t gotten to the new highs expanding part of the equation that finally came on Thursday and Friday, but sill a bit muted. Whether that was due to the end of the quarter or just weak buyers hasn’t been determined.

Power Universe

The Power Universe has been grinding higher since last week when the CFG started diverging from Price and the RSI, now the indicators are leading price and moving higher first.  Price is likely to follow along without a catalyst to change course. The RSI moving higher after coming down to test the 40 level is the most important point here. While tepid, the RSI bull range has held during this flagging action. A break over the line can get the catch up play going.

Breadth definitely improved over the last two weeks starting with the short term measures and now expanding to the longer measures. Summation Index just turned up at the flatline which can be a good signal for broader strength going forward. $IWM and the broader markets have the set up to come to life here and take the reigns as the highly concentrated names see profit taking and consolidate to reset themselves. However, this set up has been here a few times before and hasn’t materialized to the chagrin of many.

Relative Strength Rundown

Global Relative Strength

More rotation on the lower half of the World RS Leaders, but the top remained stable. $QQQ and $SPY remained on the list another week, but no sign of $IWM. $EPOL was the top RS Gainer as well as a new RS Leader this week. $FXI dropped off the leaders list and also hit the RS movers on the losers side.

Intermarket and Size & Style

Oil and $IWM are the unexpected weekly leaders this week to end the quarter. The worst this week was $DBA followed by $TLT. $TLT slipped big this week after a productive June. $DIA did move into the top half, but even with the strength, $IWM is still stuck in the muck. The Intermarket view is still a bit of a mess, but equities are slowly climbing here similar to the gradual improvement in breadth under the surface. We should also keep an eye on the strength in oil as it can have a big effect on the commodity complex.

Size is controlling the list right now with growth over value taking a back seat. Large and Mega Caps are still motoring ahead, especially outside the recent runners. Midcaps had the worst week on both sides while small and micro caps were the best performers for the week. Didn’t move the needle on the size portion of the equation.

EW Sector RS Rankings

The top four on the RS list below are the ones that do look the best here. Maybe top five when you look at Communication Services, it’s not exactly in bad shape. Utilities have taken a big hit in recent weeks, acting more like traditional Utilities than a sector with a new story. It might still be both, but I wouldn’t expect it to outperform true growth sectors in a strong trend. Most defensives are on the ropes here with the exception of Real Estate which is a sector I will be watching closely to get clues on the interest rate narrative, especially after the recent $TLT drop. Technology continues to look the best both on this list and looking at the 4 subsectors. Hardware and Semiconductors have been leading while not anywhere near overbought or stretched here, but IT Services and Software are coming on right here. A look through those components likely holds a lot of opportunity for rotation as profit taking continues at the top.

Wrap Up

As the third quarter starts there is room for either direction, but markets look set up to broaden out. The first half of the month has strong seasonality, but we ended the last quarter seeing some welcome profit taking from some of the strongest and largest names while other big massive tech stocks seemed to take the baton and keep pushing all the way to the end. Breadth has been improving under the hood with small cap performance recently, but it is still pretty mild in comparison to the large daily moves in the most popular names many of which are trillion dollar companies themselves. It’s been hard to get much to trickle down the size ladder so far, but the theory is it will in the second half. Outperformance with broader participation would be good for all and give some healthy summer rest to those that led us here.

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!