Weekly Macro Review

June 3, 2024

Charts That Matter

The big cap indexes finally saw profit taking this week hitting some of the hottest names. Some from less than favorable earnings reactions, some just narrative, but as we have mentioned in all the reports, this profit taking was due and good to see. It was even better to see that money rotating through the rest of the markets as small caps shined once buyers came back mid week. All of the RSI bull ranges are still strong, but the big guys are diverging a bit with these down weeks. $IWM wasn’t a divergence, but rolling at the 60 level is not something we like to see, so it putting in a long tail and gain keeps it in play. RSI crooked back up, but it would concern us if the small cap strength faded enough to turn RSI back down. A rejection this week would raise my concern a lot, but it is not what I feel the baseline is. The breakout back test held and the daily charts (not shown) look fine in their bull ranges to end the week.

$TLT started the week with an ugly rejection at the daily down trendline. Then Thursday reversed things. I admit, I didn’t have an abandoned baby candle pattern on my bingo card for $TLT this week. It also happened right at RSI 40 allowing it to hold the recent bull range shift. The rejection point is not only the down trendline but also the 2022 lows. A move over that level would put 94 and then 98-100 as the next targets. If this happens, it could be a big tailwind for the equity markets and probably economy as a whole.

We saw two New Lows spikes over the last two weeks. Highs got scarce, but are still in there fighting. We are in the middle right now, expansion in either direction is needed. Highs are trying to take the baton, but pretty tepid so far.

Power Universe

Last week we not only discussed the back test, we mentioned the tendency for “hard tests” that lose the breakout for a day or two. That is where we are right now. This week we look for the beachball or the bowling ball. The MA bands caught the price action and RSI is reversing back higher in a bull range. This correction continues to be more sideways than down. 

Looking at breadth this week we are splitting them up by time frame and looking at all of them over a 10 year window to see action in different types of markets. We start with the long term measures we follow. The NHNL on top is very mild currently. It has been fading some from the initial peak off the November lows, but both moving averages remain on buy signals. The indicator itself has a couple negative days last week, the moving averages are the more important signals of longer term change. The Advance Decline Line is back to the 2021 highs. It hasn’t seen as clean a breakout as price has seen, but it’s not lagging here. Finally, the %>200sma is up at 63 percent remaining elevated overall. It has started to diverge here some, but it remains elevated as seen in longer term trends, look back from late 2016 to late 2017 that saw many divergences as the markets grinded higher. What it did do is stay over 50% most of that time. This would need to get and remain below 50% for the longer trend to be in danger.

The two intermediate measures we follow are more mixed to neutral. %>50sma is hanging around the 50% range for the whole universe. This one has diverged more as the corrective action has matured. It’s not giving any big information here. The McClellan Summation Index is a little more cautious as it went back on a sell signal last week as prices started to slide. This is still corrective as we remain over the flatline. It actually held right there on the initial pullback. I would expect that to hold until proven wrong. Strong bounce off the flatline on the pullback after the initiation surge is usually very bullish. 

The short term indicators are obviously a lot more volatile and over a 10 year period it looks like a bad EKG, but we still look long to see where trends are. The %>20sma hasn’t been back over 80% this year and the broader market has been more sideways than up. That makes some sense, but if we look on the other side when the lows for the indicator start to get higher, like they did on this last dip, you often see price moving up as well. We are seeing all three shorter term measures making those higher lows. It would be better to see higher highs, but you often don’t in grinding markets, so stepping back and looking for the higher low levels can add context. Downtrends don’t reverse this action, instead they tend to become more volatile on both ends. 

Relative Strength Rundown

Global Relative Strength

Most of the top performers this week were already exhibiting relative strength. $ARGT on top with a strong week. $ENZL is the one exception that didn’t show previous relative strength, but is making a big RS move this week as well.

The RS leaders didn’t see any big moves. $EWP, $EWU and $EWS are new additions this week, but the leaders $EPU and $ARGT are still there. $TUR pulling back here, but still right up at the top. The movers list is small, unfortunately $QQQ had to be a part of it as the profit taking was big this week. Both of the RS gainers for the week are still near flat for the last quarter and just now climbing up the RS ranks.

Intermarket and Size & Style

Intermarket is still commodity and Equity dominated on the top half of the list. With the exception of $DIA which was the big loser on both absolute and RS terms this week. We prefer to see all the Equities in the top half of the list, but if you are going to have to lose one, I would prefer it be $DIA over any of the others. The other Equity ETFs have seen a pretty steady climb back up the RS rankings here over the last month. $IYR was an RS standout this week as it keeps slowly climbing off the lows. It also looked like it was getting a chunk of the buying rotation in many of the subsectors during the late week rebound.

The market action continues a back and forth struggle for the top of the list between Growth and Value contingents. Value made some headway this week as the profit taking hit the large and mega cap growth names. All this is normal back and forth for a consolidation like we are seeing. The most surprising part is that small caps didn’t make more headway after outperforming this week. The Mega Cap dominance has been there most of this year. It would be a nice mean reversion play if that could change into the second half of the year. Let’s keep an eye on it in the coming weeks and see if the little guys can make some headway here.

EW Sector RS Rankings

From yesterday’s Power Sector Review:

The Relative Strength rankings put Utilities back on top even with Energy outperforming it for the week and beyond. That relationship is not likely to last long if Energy continues to emerge. Communication Services is another space that keeps showing up and this week Consumer Discretionary gets back in the mix after a couple of really rough weeks. Information Technology took the brunt of it through not only profit taking in the hot names, but also some very poor earnings reactions in the sector.

Wrap Up

The week had its ups and downs and then ended up. It got a little precarious on Wednesday, but then buyers decided to show back up. The interesting thing was, they didn’t pile all the money back into the same names. Actually, the big hot names saw profit taking while other high flyers saw poor earnings reactions putting the hottest names on the defensive early and throughout most of the week. A swift rotation seemed to redistribute those dollars to other sectors and subsectors. This is exactly what you want to see in a stronger trend. If that rotation continues here into the new month, it could be just what we need to fuel the next leg. The back tests held last week and now we see if buyers can push through this congestion to start the new month. Markets look set up for a new leg higher, the question is whether or not it can happen during the summer doldrums. They should be able to, but we aren’t there just yet.

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!