Fire When Ready


I went into this weeks analysis knowing the markets have been improving under the hood at a minimum since the election, in reality it started to improve a week or so before.  What is amazing to me though is how I had it stuck in the back of my mind that we were overdone here.  I realized it was just what I had been hearing from FinTwit and the like this week as many are still running the narrative that the markets are overdone here and danger lurks just over the horizon (even after a two month correction, but that is a different story). This didn’t resonate, but more tug at me, especially when the current sentiment does show there is a lot of optimism out there right now, in fact that in itself has even become the next narrative of maybe it’s too much.  When sentiment gets high, it can often lead to short term bumps in the road and it might this time as well, but that doesn’t feel right either based on what I have been seeing.  And how could sentiment be so high right now with politics, the pandemic, social unrest et al.  The fact that sentiment is remains high in the face of these things is trying to tell us something.   Sometimes they do get it right on the sentiment side of course, and if the charts play out the picture I am seeing this week, this might be one of those times.  From my views markets are ready to blow and the sentiment might just be correct for a while here as these patterns play out (which is not as unusual as many would have you believe).  Right or wrong, all of these narratives are just noise until the data confirms them, So let’s take a look at what the data is saying going into the week.

I got in early Saturday to do my normal chart work and pulled up the Triple Play Weekly charts and it smacked me right in the face the setup we are sitting on in these weekly charts are a thing of beauty.  $IWM $SPY both closed at new weekly closing highs after gapping up and seeing quick selling after new highs is always a warning we heed, but the fact that buyers showed up and kept the breakout alive is a big deal on these two.  Then we look at the previous runaway leader in the $QQQ which hasn’t made new highs, but is hanging right up near the top of this 3 month range.  This at a time when all I hear about is how tech is dead for now and value is gonna rule the world from here.  That’s not the picture the data is giving us here.  Sure the biggest names are struggling a bit and throttling the $QQQ for a bit, but major uptrends are still well intact in the subsectors within tech. On this level, RSI or CFG are heading higher with plenty of room.  $QQQ even fired a new RSI Positive Reversal on this pullback which bodes well for another leg from here.

  Below you can see the Daily and 65 minute TP charts are also still looking solid in their bull ranges and not giving any signs of losing traction at the moment

Triple Weekly Chart

Triple Play Daily Chart

Triple Play 65 Minute Chart

New High New Low Differential

A quick run through the macro breadth view also gives a pretty positive picture. As we drop down through the major measures, let’s talk about some of the hints of strength we are seeing.  Starting as always with the NHNL Differential we will not that after last weeks spike the Moving averages never went negative over the last pullback and are already crossing back up.  The Advance Decline Line is not making new highs yet, but is holding up well in recent action and pushing up against those highs.  Moving Average Breadth measures are all at or in the top quartile.  It is important to note this while the price index itself is just now looking to breakout.  Most importantly is how much ground the %>200sma covered since last months pullback.  This shows that pullback was in part do to many battles with the 200 day moving average.  This big rise is showing the buyers won the battle there.

Advance Decline Line

Moving Average Breadth

Next we move on to the McClellan chart which houses our favorite intermediate indicator in the Summation Index.  Currently we are on a buy signal off last months corrective action.  It was nice to see the Oscillator hold above zero this week on the gap attack we saw early week.  McClellan looks good for more as well here.  The Advance Decline Line Oscillators using the 10sma & 20sma are both back in the zone with the shorter average strengthening through the week as markets digested the Monday gap. 

And all this happened while only putting in a single 80% up day, which is good and all, but nothing to try and draw a signal from.  We can also look back and see there was not really much activity here in this recent consolidation as well showing it was more digestive than battle for control oriented.  It seems by what I see where buyers are back in control and this time they are spreading the wealth through a much wider participation at this point than we have seen since the spring surge out of the lows when everything was reflexive.  This time it’s a choice… That seems important to me.


AD Oscillators

Percent Days

Overall when I look down through these charts and even beyond to the sector level not posted today, the markets are set up in the best looking patterns that I have seen in a long time.  Sometimes setups can be too perfect and get derailed over the short term, and we may see that here too, but the structure looks too strong to me for a major reversal to come from this look.  Now that we have looked at the data, we can go back to talking about narratives if we must, but the action is not painting a negative picture here, don’t let the media convince you otherwise.  And if you feel they are starting to get to you, just remember there are $7 trillion reasons (FED & Congress) sloshing around in these markets to believe any corrections are likely to be short lived until that changes and they want to remove some of that liquidity.

Good luck and as always I hope this helps!

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(All market data above are derived from, Esignal, and Reutersdatalink)
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