Key Takeaways
- Disappointing downdraft leaves US indices vulnerable to another 3-5 days of weakness before turning up in March
- WTI Crude showed first real evidence of minor break of uptrend, which might result in minor weakness for Energy which should prove to be excellent buying opportunity
- DeMark exhaustion might line up with short-term SPX cycles to bottom by 2/27/22
The relentless volatility continues, with Thursday casting no doubt that trends likely require a bit more weakness before real stabilization can ensue. Thursday’s downturn does not seem complete as of the close, so technically I’m expecting a brief undercut of February lows which could result in SPX violating 4300 and testing January’s lows before any stabilization. However, time-wise, this decline looks to be nearing completion and a more serious trading low is likely to be in place by 2/25, the end of next week. For dip buyers, we’re nearing a time when it’s right to average into longs for a March rally. Whether or not January lows are briefly undercut isn’t important technically to these time studies. Thursday’s selling lacked the volume seen on most days, and is nearing a time when exhaustion should set in, to this decline within a week.
Counter-trend Indicators suggest lows should be near within two weeks
DeMark indicators could possibly register TD Buy setups on weekly charts to QQQ 1.15% by the end of February/First week of March. This would represent the first meaningful weekly signal since the TD Combo “13 Countdown Sell” appeared in mid-November for QQQ. This looks to be important in interrupting this decline and should provide a chance to buy dips within the next 1-2 weeks, but I am expecting by next Friday. Charts below show the current Setup count, which is registering a “7” but could come to completion in two weeks’ time.
Additionally, Ratio charts of QQQ/SPY are now in unison on both daily and weekly charts to showing a snapback in QQQ vs SPY relatively speaking. This will depend in all likelihood on QQQ first forming its own Buy Setup and then could turn higher into March. (Not shown)
WTI Crude showing some minor evidence of peaking out which might affect Energy briefly in the near-term
Daily charts of WTI Crude have officially broken their uptrend which has been in place since late last year. This likely results in a minor pullback for Crude, both WTI and Brent, at a time when backwardation between 2nd and 3rd months has reached the most extreme levels since the early 1990’s.
Energy, to its credit, has held up relatively well as a sector and has not really shown much weakness thus far. However, a break to new weekly lows would likely affect Energy negatively in the short run. (Slowly but surely, weakness in Technology has started to drag down other sectors)
Overall, given my bullish technical thoughts for Energy outperformance for 2022 and ongoing bullish wave patterns for Crude, this weakness should prove minor and prove to be a buying opportunity. Areas of support for XLE are found at 63.46, which should be strong on any meaningful decline. Underneath lies 61.26 which likely is not reached this first go-around, but also important as support and should represent a buying opportunity. Daily WTI charts below show this breakdown after prices hit resistance near $93 in WTI Crude.
Finally, charts of USDRUB show the Dollar on the verge of potentially a big breakout vs the Russian Ruble, which is important given current geopolitical tension. Any weekly close over 80 would cause a pretty major breakout in USD, (or seen conversely, breakdown in the Ruble). Lately, quite a few emerging market currencies have been weakening vs the US Dollar and could continue a while longer before this is complete. My Technical target for DXY lies near 98.
