Look Back to move Forward

2020 by all accounts was a very different year than we have seen in a long time.  We began the year with hop for continuation of 2019 success, but get derailed quickly as the Pandemic panic set in.  Once it started it infiltrated so many parts of our lives it was unreal.  Much more than just health became a part of the equation as we moved through the year.  The best predictions for 2020 were out the window in a matter of a month or so.  Interestingly, it doesn’t take a chaotic year like we just went through to see many of those predictions go off the rails like that, Yes financial pundits and many advisors keep doing it year over year.  It’s a soothing game that makes everyone feel like there might be some certainty moving forward.  It is a comforting exercise, but I have never felt it to be very valuable in the end.  Now before I move on to charts, making big predictions and mapping themes are two very different things we will talk about at a later date, but for today we are going to do a quick top down review of the Triple Play charts to get a look at where we have come from and where we are right now to help guide us until the data changes.  We find it easier to stay on top of what is happening instead of overly worrying about some prediction we made and what we thought should be happening.

Triple Play Quarterly Index Chart

Starting on the highest level with the TP quarterly chart, the first thing we need to note is this chart is using the actual indexes instead of the ETF equivalent since the data goes back further for such a long term chart.  All three of these are in RSI bull ranges and well above rising MA bands.  The charts are moving well from lower left to upper right with Only $NDX nearing overbought on its RSI, but the CFG is just making new highs after a trough which could mean momentum still has a bit of room Also note on $NDX very high RSI reading are not that abnormal. $NDX the clear leader since 2009 lows and not giving it up yet.  $RUT $SPY both just broke out of multi-year congestion and look to be starting new legs higher in recent quarters.  This chart is such a high level we can’t really trade on it, but good to know it is pointing higher as we move down to the next level

Looking at the monthly view we can move back to the ETF world and utilize an actual trading vehicle for the charts.  Again we see all three are in RSI bull ranges and above the MA bands.  It is really clear the absolute strength and momentum in $QQQ since the 2009 lows.  It hasn’t even broken 50 on RSI or the MA bands the entire run.  RSI may be getting a little elevated, but the recent flag break could keep this grinding higher for now.  $IWM just moved back into a RSI bull range and away from the MA bands in recent months; playing some long awaited catch up to the big guys.  $SPY is just sitting in the making its own highs along the journey; again not looking particularly overbought on momentum as it continues the current leg higher.

Triple Play Monthly Chart

Triple Play Weekly Chart

Moving down to the weekly level we see the roles are reversed.  On this level the IWM is the most extended in the short term and might need a pause (as many have been calling for over a month), but it doesn’t have to on our timetable.  The RSI is in the 70s, not the 80s, and the CFG is just over 100.  Either side has a shot after last weeks small loss, but not enouugh here to call it bearish.  $SPY $QQQ put in small bodies as there wasn’t much vigor on either side.  The RSIs and CFGs both have room to extend higher with price before any concern if they want.  The $QQQ does have a divergence noted and will be watched for negation or price reaction; currently favoring negation, but time will tell.

One of the reasons I questioned the timing of any rest for the $IWM was the positioning of the Daily RSI chart.  My longtime followers know about mushy RSI trends and how powerful they can be, and that is what I see when I look at this daily $IWM chart.  It is currently in a very strong and grinding move that has a lot of back and forth keeping the RSI from getting overbought. This week it pulled back and forged fresh RSI Positive Reversal patterns as the CFG came in hard.  This has me leaning to more upside in the shorter time frame, even knowing a rest would be good and will come when most least expect it.  $QQQ seems to be wedging a bit, but not overbought and has clearly broken out of the summer consolidation. Mega cap technology has been the drag here with many charts starting to break out again.  $SPY once again stuck in the middle.  It consolidated most of December in a whippy fashion which did keep a slight upward bias. Not overbought and ended the year at all time closing highs which isn’t shabby.  Don’t believe the hype, make the chart show you its weakening before you jump on that bandwagon.

Triple Play Daily Chart

So from the highest levels all the way down to the daily charts, things aren’t looking so bad right now.  It can change quickly so we stake out our ground everyday and make decisions based on the best information we have.  If you do that, you don’t have to hang your hat on some long term prediction or fanciful narrative.  I don’t belittle those who chose to do it, the industry ask for it, almost demands it, on a regular basis.  It makes people more comfortable to think someone knows what is going to happen next; well they don’t!  Neither do we, and it just so happens many market environments can be much more difficult than predicted; We choose not to hang those mental biases on ourselves with incorrect expectations in an already difficult environment.  This focus in the now and daily repetition helps slow things down when everything around us seems to speed up.  

Good luck for a prosperous 2021 and as always I hope this helps!

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