20120824 Intermarket RS Review
Finally the markets saw some push back this week as we get closer to September, but the bears couldn’t seize control by weeks end. last week we had an almost perfect structural set up for equities when looking at the RS List. After this week’s shake the $QQQ were able to stay near the highs while other equities moved back towards the middle. It was commodities that moved back up the list with the metals finally getting involved. The good thing is risk off is still at the bottom which bodes well
Equities
$QQQ sticking right at the highs this week, but can’t quite get through yet. Price is holding well with the indicators giving mixed signals. RSI crooked back up Friday well above the rim (above 60) while MACD looks like it wants to rollover. I lean to the RSI here as MACD has a history of rolling over before price due to the make up of the Moving averages used to calculate it. Doesn’t mean we don’t pay attention, just not a big worry yet. We aren’t even near the 20sma yet.
$SPY chart is similar. If we do fail here, it will be a classic double top. That said, I am not seeing that right now. Last week we probed new highs and reversed, however we did not see the fast move from the failed move we have come to expect. That tells me there is still a bid here even at these levels.
With $IWM still lagging it does concern me a little, but my other breadth work is not currently confirming the weakness in small caps. Still a caution if they can’t get involved. One way to do that would be to break the Inverse Head and Shoulders pattern. If that happens I believe it will open the flood gates across all equity indexes. If it fails then we could get the fast move down. So I guess it at this point it boils down to the $IWM Inv HnS versus the Double Tops in $QQQ $SPY. May the best pattern win!
$DIA negated its breakout this week and was the only index to break the 20sma in the process. Friday’s action helps, but I am not that worried about this one. $DIA should lag in uptrends, so the current rotation is fine with me as long as it moves to growth areas which is still to be determined.
Bonds and Currency
This week this segments participants are all clustered at the bottom of the RS rankings even with bonds bouncing this week. This shows just how start the recent weakness has been.
$JNK and $LQD still look fine here to me. $JNK heading into new highs this week as other bonds begin to correct the strong down move. It is hard to get too bearish on the US with both $JNK and $LQD holding up this well. I have and still expect more struggles here if people start believing in the equity move. Rotation to equities from bonds is something we haven’t seen in a long time, but believe me it does happen.
Here is where it gets important in the bond world. $IEF and $TLT both bounced this week off oversold levels. This came after free falling for two weeks. In my opinion the bounce is not convincing yet. On the way down we did get a range shift in RSI suggesting the uptrend is done for now. At the bottom however, the MACDs are lined up similar to March of this year when they took off like rockets. This week both found resistance at the falling 20sma and are still below their respective 50sma. This will remain a big tell for equities, and the next few weeks will have plenty of political events to spark a move one way or the other.
$UUP was on its own this week. Could not get any traction even as other risk off measures moved higher. Looking at the chart it still looks weak to me and both indicators suggest more down. We did see a spring off the 200sma Friday, so maybe I should see where that goes before I read too much into it.
Commodities
Metals finally started to join the party this week with big moves. $SLV moved all the way to the top of the RS list.
definitely a change in character here as it blasts higher all the way to the falling 200sma. Even better it didn’t violently reverse on first touch. A few days hanging out in this area could set up another jump. likely a lot of pent up energy still in this space.
$DBC and $DBA are both hanging in at the moment. $DBC is pulling in after its recent run but again not aggressive here. On the other hand, $DBA has been moving sideways for almost 6 weeks now in an ascending triangle. These are normally continuation patterns, and after the strong move I will be watching for that…but also be ready if it does become a reversal. For now I believe the drought situation will keep a bid here, but volatility is likely to increase as growing seasons wind down.
$USO is looking a little toppy, but I have said that before. the wedge is constricting around price as we move higher. Just watch the rails; it can go out either side. Even if we do break the rail to the downside the sharply rising 50sma could be a good spot to watch. On top the 200sma is staring us down.
$GLD went hand in hand with $SLV this week as it surged above the upper rail of the Ascending triangle. The volume increase during the jump bodes well for more in this space. Now if only $JJC could get with the picture…
Okay, so that wasn’t totally fair as $JJC did move higher this week, but not nearly the vigor we saw in the precious metals space. Still definitely some skepticism about the global economy (especially China) hanging around out there. No break down in recent weeks just puts this at a neutral in my book. We all know the economy is not booming, but the real question is it falling. I don’t think so, therefore it takes $JJC off my important list for now.
As I mentioned last week markets can correct at any time. I often like watching corrections more than bull runs to get clues on how the health of the markets. This week’s pullback is hinting the markets are still healthy enough under the surface. The lack of aggressiveness in this weeks pullback as compared to the down moves since June started might suggest dips are being bought quicker as those who have missed the move take any chance to get on board before the break out. Of course the lack of participation here in late August is likely playing a role, but wouldn’t that suggest more volatility if the bears were really hungry?
Enjoy the rest of your weekend and we will see how it goes come Monday.
Good Luck! It is there for you to make.
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