Weekly Macro Review

March 10, 2024

Charts That Matter

A week where the markets finally found some indecision based on the Doji in $IWM $SPY with $QQQ going a bit further biting into last week’s gains. The daily chart below shows early week selling which we have seen, but the Friday action was different. Recently, weeks have been ending strong, so this is something to watch for a change in character. It could also just be a one off as down weeks for the $SPY or $QQQ have been hard to come by since the move began late last year. The $IWM eked out a small gain to differentiate itself a bit, but still a high wave candle on the weekly showing the battle within. The week didn’t really go anywhere for equities as a whole, but there was a lot of movement around other asset classes and within the ranks.

One of the areas that caught our eye on the Intermarket RS Rankings below is the weakness in the $UUP which is a dollar proxy. It rolled over a few weeks ago just when everyone it started getting attention for the strong move off the lows. Now it is back about half way to those lows according to $DXY another US Dollar proxy I prefer. This daily rollover puts it in an RSI bear range and near where RSI bottom before, but it did so at that spot for multiple points at the end of multiple downdrafts. CFG is lower on the daily than it has been in a year. This cautions of a bounce short term, but also an intermediate warning sellers pushing stronger when they do push. The weekly shows the confluence right in this area and then the next potential support is the lows from last year down near the 61.8% retracement. It could go either way right here from this daily chart candle, but overall it looks tenuous with the weekly failure swing and this daily action. If it does head down to test the lower boundaries of last year, it should be a positive for equities along the way.

Power Universe

Price action for the Universe wasn’t off the charts anywhere, just muddling along.

RSI continued a mushy trend as price took a quick dip back near the breakout early in the week, but again bounced back quickly to highs after the two days of weakness. Everything remains intact.

Relative comparatives versus this wide ranging universe are more nuance than they are signaling. Seeing the potential for outperformance versus the major indexes suggests the broadening continues, but note it isn’t necessarily leading versus small caps. Maybe our favorite Mid-Cap space is ready to shine again in this environment.

Breadth also just chugging along with pretty much the only standout was AdvDec Line making new highs. 

Selling seems abrupt when we get it these days, but it is not doing any real damage so far. On the other end, buyers aren’t very aggressive either. The indecision is showing in more areas than just the weekly candles.

Relative Strength Rundown

Global Relative Strength

This week the US indexes aren’t anywhere to be found in the leaders list or the weekly outperformers list below. $EPU Peru was the biggest mover for the week jumping up to the top spot in RS too. Both lists are filled with many developed country ETFs as the US markets take a break. Broad world strength also is a positive to the strong trend here at home.

Intermarket and Size & Style

The Intermarket ETF list is where the turmoil starts to pick up.  Commodities have taken siege of the top spots shifting equites down the ladder and even putting a yellow flag up by sending $DIA into the bottom half of the RS list. $GLD $SLV are the biggest movers with very strong weeks. As mentioned, equities have lost the leadership position and are still near the top of the list for the most part. These developments are worth watching as a potential defensive warning in the short term.  On the other hand, it could just be reacting to the $UUP weakness we are seeing and go up along with equities for as long as the $UUP moves down. This major movement in the Intermarket rankings brings in some new scenarios to watch for. 

Size & Style rankings also saw a decent shake up this week with Midcap value being the big mover on the week in both percentage gain and RS point. Value was the big winner for the week disrupting the list.

Bond Size & Style ETF is another list we follow that gives rankings of the bond categories that Vanguard ETFs cover as a proxy for the various market segments. Even this list is showing a good bit of rotation recently according to the RS rankings (especially the movers columns).

Sector ETF by Size

These are provided for a quick overview for the macro investor to be able to see what sectors are performing and does size make a difference in the space or not. The sector world took a more defensive tilt this week with a good bit of rotation on these lists as well with gains in the defensive sectors and lost ground in the offensive areas like Tech (especially cap weighted) and Consumer Discretionary. Energy and Materials made the biggest RS moves while price gains were led by Utilities. Real Estate continued to come off the mat too. Financials continue to hold up well, but not surprise or impress just yet. Lots of movement, but nothing to really change the tide in the current uptrend.

EW Sector RS Rankings

In our equal weighted world, Materials and Utilities were the standouts. Materials we have spoken about in recent weeks gaining traction, so it is nice to see it lead. Utilities gives a little more defensive a tone while Information Technology, Communication Services and Consumer Discretionary take a rest. Even Health Care, which can ride both sides of the offensive/defensive line, gave back some this week after a long streak of strong gains led by Biotechnology. All in all, it looks like rotation more than a run for the exits. If this happens and Mega-cap names take the brunt through profit taking, it will likely bring the major indexes dominated by those names down some too. Don’t let that fool you out of the hunt, there are plenty of other fishing lanes opening up for the first time in a while. It is your job to decide to prepare for some turbulence where you are currently positioned while it passes, or move to calmer waters (or even to shore) where the fish are biting in the short term.

Wrap Up

So, is this the seasonality we are looking for? With OpEx coming up this week, I am not so sure. Markets are in strong trends overall with expected headwinds around now and just experienced a rare down week for this move. It wouldn’t surprise us if we see more down from right here, but currently without confirmation, we must tread lightly and respect the major trend higher. If we see follow through weakness into next weekend, that will provide a stronger confirmation of a short term character change. At that point we will start watching to assess its new character and act accordingly. Until that happens, most of the evidence still lies on the side of the trend here and even this caution is in the context of short term price action. Longer term progress remains on track.

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!