Technical Strategy Video:
Key Takeaways
- Monday’s follow-through decline has resulted in QQQ, IWM hitting multi-month lows. SPX weakness down to Dec. 2021 lows expected the last two weeks before a bottom
- Treasury yields pushing up to yearly highs along with US Dollar turning higher look to continue into late January
- Regional Banks look like the best part of Financials for those inclined to play this space
The relentless selloff in US Equity markets continued to start the new week, with Monday bringing about weakness to new 2022 lows for SPX, DJIA, NASDAQ, DJ Transports, and over half the major S&P GICS Level 1 groups fell to the lowest levels since late 2021. Russell 2k as shown below, managed to break the important 208 level which had held since last February, making Small-caps still an area that still likely shows further underperformance. Overall, near-term, Small-caps have shown more technical deterioration than either Large, or Mid-Caps, and it looks early to buy dips until 220 can be recaptured. Downside targets for IWM lie at 196, with a max near 183 before prices find support and start to bounce into the month of February.
Technical Developments over the last 48-72 trading hours
Financials look to have made a temporary peak right near resistance, as discussed last week, leaving Energy as one of the few remaining “Last Men Standing” among sectors
Breakdown in Russell 2k looks important and negative in the short run
Treasury yields across the yield curve are jumping to multi-month (and in some cases, Multi-year) highs
US Dollar looks to have turned higher as of last Friday, 1/14/22 and likely pushes back to new monthly highs in DXY
Sentiment readings look to be slowly turning back to bearish. AAII registered nearly 13 point spread in favor of Bears to Bulls with abnormally low levels of Bulls to 3 year lows
Momentum still not oversold on daily charts of SPX, NASDAQ and has just officially exited overbought levels on monthly charts
DeMark indicators which gave a temporary TD Buy Setup using on ratio charts of QQQ/SPY last week, remain early on weekly charts, and this suggest 1-2 more weeks of pullback before this is complete. The Weekly Symbolik chart below shows this ratio
While the daily TD Buy Setup did materialize and provide 2-3 days of stabilization, the ratio never got above 12/16/21 lows before turning back down. Thus, the weekly chart will be something that takes preference and appears 2-3 weeks away from a possible low.
Financials look to have rolled over after hitting resistance discussed last week, leaving just Energy as one of the few sectors unscathed thus far during 2022’s setback. XLF shown below looks to have an important area of support near the Red line shown below which intersects prior highs from early December. Any break of $39 in XLF -0.37% post MS or BAC earnings would suggest even more selling lies in store for this group. Technicals of XLF are quite important given that this makes up 11.4% of SPX, the third largest sector.
Relatively speaking, when looking a bit closer at Financials, the Regional Banks still look to be one of the better ways to position in this group for those involved. Ratio charts of KRE -0.17% vs KBE -0.28% continue to look quite appealing technically with this ratio having just pushed back to new highs on a multi-year basis. Thus, while the Broker Dealer/Investment Bank area of Financials has been hard hit lately, the Regionals have weathered the storm much better and are an area to overweight. My favorite technical stocks of the Regional Banking space are HBAN, KEY, CMA, FITB and TFC along with Northeastern Bank standouts like FULT, CFG, MTB, and SBNY.
