Weekly Macro Review

May 27, 2024

Charts That Matter

The weekly candles point out the mixed nature of the week. $SPY with a doji, $QQQ kept marking forward and $IWM put in a reversal candle to the downside. We discuss the Triple Play charts on three time frames in the Power Snapshots posted Saturday. Overall, this is not a bad look for equity markets. This week the small cap weakness held breadth in check, but didn’t do any larger damage. If $IWM puts in a follow through week it could change the picture, but that needs to happen first.

$TLT continues to dance with the down trendline. This also got hit with equities on Thursday showing they are more correlated at this point than we are used to. It does happen and with this backdrop it makes sense. The perception is equities and households would be helped by lower rates since the economy has avoided recession at this point and is chugging along fine. It still surprises me that this is to the dismay of the FED. Anyway, rates should come down some later this year and the $TLT is trying to get out in front of that move, but at a snail’s pace. This week’s ugly flagging action that closed the gap also put in a RSI Positive Reversal going into next week. Let’s see if it can play out and finally clear the trendline for good. The weekly still has a lot of overhead resistance potential between here and around 94.5. Over that, it has some room to climb.

New highs were fading early week even before the Thursday liquidation break. The good news is price and breadth fought back on Friday and put in a decent counter punch. Not enough to engulf the down days, but if you get back half, it’s a good start. What is notable on this Highs/Lows chart is the snapback in the 253 day highs. A good rebound here is what you want to see, the lower readings will fill it in quick with follow through, but the lack of damage on the longest measure is good to see on those sell days.

Power Universe

The breakout we saw in the previous week is getting tested right now. The universe did come back down below the breakout, but is attempting to find support at the 45ema and MA bands just below the official breakout level. This is very normal action as a lot of breakouts get “hard tested” where the retest goes below for a day or two. If buyers show up and we pop back above it like a beach ball under water, all is good and we head higher. If it sinks like a bowling ball, all bets are off. So far, the RSI is holding near 50 in a bull range and still on Nitrous with CFG pulling back much faster than price or RSI. This often sets up as a buy opportunity on the reversal.

As I mentioned at the top, breadth was already coming off a little as price rounded off early in the week and then hit the slide on Thursday. This action hit the short term measures like %>20sma, McClellan Oscillator and Breadth Thrust the most, but couldn’t push any to oversold here. There are still just too many areas working for that kind of signal. The drop in the McClellan Oscillator has the Summation index near another sell signal. Now, it isn’t a given yet; strong breadth early week could either kiss or give a quick whipsaw back higher which would be a strong continuation signal. If it does put in a sell signal, it would take some steam off our strong summer scenario. Longer term, NHNL and the AdvDecl line aren’t really reacting much at all here.

Relative Strength Rundown

Global Relative Strength

World markets are still chugging along, but less winners this week. After mentioning $INDA last week, it was a top performer this week which is always nice to see. $QQQ and $SPY also made the list for the first time in a while which is also good to see. There are only a couple of the leading sectors this week in the dark green zone showing the rest are moving up the ranges. EWT is coming out of a nice long weekly base. There are quite a few recent reversals working in this group.

While there was some jockeying for position in the RS leaderboard, there are still a lot of the same names. $ENOR and $EWT are new additions. There is $EWT jumping out again. If you want to go more regional, $EEM, $VPL or $AIA might be a way to go.

Intermarket and Size & Style

Intermarket saw the equity proxies try to hold the top half of the rankings, but the $DIA slipped back below the midline after a tough week. Here we were concentrating on the issues in $IWM and $DIA was down a full percentage point more on the week. There were some interesting moves this week with Metals getting hit hard led by $CPER and $DBA on the other end of commodities with a big gain and jump on RS. $TLT is also climbing the ladder. In this environment, that is likely to help the equity case but may put a damper on the Commodity action. Maybe that is why metals had such a tough week. It’s a little early to tell, but worth watching as many of these metals are off recent major breakouts.

Size and style is trying to get back in gear if this corrective period is nearing an end. Growth continues to climb back to the top of the list with Midcap Growth joining this week.  Small caps as a whole had a tough week, so it’s going to take some work to get that growth ETF back in the mix. Larger names are starting to take back over on the relative performance mix, but this time Midcaps are moving up the list. This should continue as the major bull trend builds on itself in time and gets more acceptance.

EW Sector RS Rankings

From a sector basis, it is good to see Materials dethrone the Utilities, but even better to see Information Technology and Industrials climbing back up the RS list here. Commodities plays through Materials and Energy remain up in the top threes for now though, so we can’t lose sight of their relative positioning. Utilities were actually one of the biggest losers for the week behind Real Estate and Communication Services. We discuss the sector and subsector world in detail in the Power Sector Review each week. It’s good to see defensives backing off on a challenge week and offensive sectors holding up better.

Wrap Up

This week saw the challenge we expected after the breakout and started an official back test on the Power Universe. $SPY didn’t quite get there this week before rebounding and $QQQ rejected that idea quickly Friday morning. This felt more like holiday week jockeying than it did a major change of character. Whether we are actually ready for this breakout yet or not is what we are figuring out right now. Small caps need to play along for it to succeed. In the end I think they will as the underlying economy and intermarket setup still favors it. If you add lowering interest rates on to take some pressure off the average consumer, it will likely add fuel to this growth economy we are in.

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!