It feels like forever only to look back and see all this mess started just over 3 months ago with respect to the markets.  A ride like no one has seen and or expected.  Sure there were and always will be the top callers and bottom callers, but usually they are not the ones to listen to.  My last post came about a week and a half into the drop where we discussed being at normal pullback type levels, but things didn’t feel that normal.  As early as the post was, we discussed how markets can stretch, but where ever they stop, a reflexive move taking back at a minimum the last leg down which is usually the panic part of the cycle.  The stretch can only go on so long, so we use breadth to decide when and if it is time and how aggressively to start wading in again.  Finally we build on that using price action and relative strength to figure out where to participate.  I continued to update the breadth situation bi-weekly through Stocktwits and Twitter (@gtlackey) until mid-March when the breadth was completely washed out as the markets were putting stakes in the ground for a turnaround.  It came about a week later.

The fascinating, but not necessarily unusual part is watching the projections from the lows and complete disbelief you hear all the way to where we are today.  Every little pullback was or will be the next move to retest the lows as the wall of worry continues to have the loudest voice.  As we move higher, even those bears are starting to do some buying, but the begrudging tone is through the roof for those who fought this all the way up or worse, nailed it and jumped off after the first 15% for the retest.  This is a stage, but no FOMO in my opinion yet.  While the emotions are high like this, it is nice to have the data to fall back on so I can do my best to stay out of the fray.  It’s a lot of data, but has a nice flow once you get used to it.

PRICE

In all of this price is the most important aspect so let’s take a quick spin down from Monthly to the 65min Triple play charts I post regularly.  First, we have the monthly chart which is impressive considering.  Charts and tables are small on here, but will pop out into new window as needed.

Of course, first mention goes to the $QQQ (and $COMPQ) for a strong hold on the way down and impressive run back to new all time closing highs. The down move never saw the RSI or CFG get below the 50 level.  The $SPY made a larger down move to retest the 2018 lows.  While doing so, it also forged a very big RSI Positive Reversal which targets new highs in the 3600 mark, but I believe more in milestones than targets. Markets will decide where we go.  Larger names have definitely had an easier time than the small guys.  $IWM still has a good bit of room to cover before it gets anywhere near new highs.  It fell the farthest and is currently the only of the 3 in an RSI bear range.  On this level, the rebound off the lows looks strong, but as we drill down you will see it was anything but easy for Small Caps.

The weekly view starts to show a bit more of the back and forth we have seen, but still nothing ominous so far to signal we are topping out.

$QQQs are breaking into an fresh new RSI bull range.  $SPY and $IWM both have more room to cover here before they can cross the RSI 60 threshold.  It is worth noting here that the CFG are already getting into OB territory.  They could certainly continue higher and propel the other two into new RSI bull ranges as well, but this setup also gives some credence to the idea that we could see a summer consolidation before pushing too much further.  $IWM is also notable with a big indecision week as it closed the large gap down from the early throws of the rout.  If it can push through higher in the next week or two without giving much back, it would be a big change of character for the little guys.

Dropping down to the daily levels you can see the noise starts to pick up showing not only the grind, but also the nearly month long consolidation most of the markets went through before moving above in the last week or so.

The $SPY shows the sideways move we just went through the best of the three.  $QQQ continued to run with a few raids along the way, but didn’t really show much consolidation.  $IWM continued to test the fortitude of investors while keeping the naysayers on message.  The problem is, as we will get to in a minute, the breadth never really broke down to support the major rollover calls.  Daily continues to look constructive with all three in RSI bull ranges and above the MA bands.  We are getting near more potential resistance zones, but only potential for now and the daily grind in the overall markets remains impressive and somewhat self-fulfilling at the same time.

The TP 65min chart from Friday is a bit old news since this will be posted on Tuesday morning, but still in the chain.

This shows the intraday view was set up to move higher as well as it ended the week in RSI bull ranges and above MA bands while closing with a strong candle showing little fear of weekend headline risk damaging things.  Investors being willing to take on risk into the weekend shows the fear as a mindset has diminished for the moment while the rhetorical noise of anxiety and worry remains.  

Price charts here still look higher to me.  The only concerning looks at all are the weekly charts that might be due for some pullback or consolidation before we make the final run for new highs, but that will be somewhat dependent on if participation continues to expand or not in the near future.

Breadth

Here we look more for how things are progressing or deteriorating more than absolute levels.  Starting with one of the long term breadth signals, the NHNL differential flipped to all 3 buy signals in early May, but got two of the 3 signals by mid April suggesting this was more than a dead cat.

We haven’t really seen a big run in new highs which is not terribly surprising when looking at the market setup and levels of the price action in the indexes.  This is why the signals are important versus the absolute level of the indicator.

The Advance Decline Line has been the one here that has lagged the most giving way to the weak breadth calls, but this makes some sense when you add a little context.   

We already discussed the $IWM lagging some and having a tougher time getting traction.  This explains some of the AdvDec Line issues.  While it is important for the Economy for smaller companies to thrive, when it comes to market indexes, the market cap gap there lessens some of their overall weight.  Either way, it is now starting to tease new highs as the small caps try to get some traction.

More important to measuring progression is the MA Breadth chart measuring how many names in our universe are above their 20ma, 50ma, 200ma. 


Even through all this, the MA breadth view is one of my favorite reads, the main thing you must do in this instance is understand enough about moving averages to know the velocity in both directions messes with the shorter averages.  That said, the progression of improvement from the short term average up to the longer term 200 moving average is a staple of sustainable moves off of major lows.  A long term buy signal here happened when the %>200sma moved out of the lower quadrant (30% threshold).  We also got a very reliable breadth thrust signal from the %>50sma moving over 90% this week as well.  I choose to pay very close attention to this chart and its progressions while the pundit projections are the weak breadth will be the undoing of this move.  That is not what I am seeing here.

McClellan is probably the best intermediate breadth indicator we have and it gave us some nice signals within a week of the low and continued to defy the cries for a top all the way up. 

We did get the one Summation whipsaw, which is a great signal of its own if you are listening.  Right at the point the short and intermediate term breadth measures were rolling over and giving the bears their best chance, participation kicked in and took the Summation right back to buy telling us the buyers remained in control.  

The AD oscillator using 10 and 20 day moving averages gives a better look at the volatility in the Advance Decline Line.  It hasn’t been straight up strength like the Summation, but has continued to oscillate in the right zones. 

Even when the 10ma hit an extreme, it was at more normal levels, not major bottom extremes pointing to just normal ebb and flow returning to the markets.

Finally on the breadth review, we look at the Percent Days chart that is starting to quiet down some which is also a sign of moving back to normalcy. 

We are still seeing sporadic prints on both sides as volatility is still present in the grind and can get stoked pretty easy as emotions remain high, but overall the knee jerk reactions are lessening as time passes.

Two of the key takeaways from the breadth is the limited weakness during the month of sideways movement and the broadening participation as we moved out of that consolidation in recent weeks.  This is being missed by many and is likely to continue to drive this for a bit.  The rotation we are seeing is not just from sector to sector, but also and maybe more importantly moving down through the size brackets as we will see in the next section.

Relative Strength

Now let’s see where the money is moving to and from as we go back and look at a derivative of price.  Looking at the Macro picture through breadth can be complemented nicely with another view from a relative strength perspective.  Our relative strength calculation is designed more for short to intermediate turns, but looking comparing various ETFs over asset classes as well as many other segmentations paints a solid top down view.

I have recently added a new list of countries to start looking at how the US is faring versus the rest of the world markets.

The higher the US markets can rank the better here.  Having the $QQQ at the top and $IWM $SPY in top 1/3rd works.  Like to see them all in the top half of the list which $IWM just recently surmounted.

Next we look at the Intermarket view.  As we have said before, we want the equity ETFs in the top half here as well, the higher the better.

All are in the top half now that $TLT has ended its long run leading, but having $SLV lead is a bit odd.  Equities have made strong relative strength moves over the last week and last month and the list structure is set up for equity gains as we start June. 

As I alluded to in the breadth view, moving to the Size and Style relative strength list we can see the currently ranking moves from Small Cap Growth at the helm through the progression all the way down to Mega Cap Value at the bottom. 

This shows the broadening and confidence building in this move as we progress from the terrible projections into measurable improvements.  The broad market relative strength views are all currently in equities favor.  Yes, it comes after a strong run, but when combined with the broadening breadth and some developing confidence, this could stick for a while.

We are in a time where tensions are very high and it seems like we are living in the next Jumanji movie with every new week, but the markets are beating to their own drum for now and can continue to do so for a while as long as we continue to see improvement.  Markets focus much more on improvement than they do current situations.  This does not mean there won’t be tape bombs and pullbacks along the way, but so far the technical view does not reflect any overriding ominous danger in the market near term while still building the underpinning wall of worry that continues to manage these markets.  I am going to leave it here for now, but will do a shorter post updating the month end Sector breadth and relative strength in the coming days.