Key Takeaways
- Tuesday’s downturn is disappointing, but doesn’t imply a serious selloff. Near-term breaches of 4250-SPX would allow for a bit more weakness before prices turn up.
- Agriculture remains a “red-hot” space and still looks to work in the month of March
- Bitcoin and many Alt-Coins have begun to stabilize. A trading bounce looks likely
The downturn in SPX Tuesday didn’t shake convictions about a low being near, but the area at 4250 serves as a “line in the sand” for short-term traders to watch carefully in the days ahead. Overall, a pullback under that area would violate 2/27/22 lows in S&P Futures and also represents a 50% retracement of SPX’s recent bounce. Such a violation would temporarily result in a “flush” which could reach or even mildly undercut late February lows. Yet, I’m expecting any further selloff has a maximum downside to 4000 and would be buyable for a rally into mid-to-late March. Gann’s Mass Pressure index turns up sharply after 3/7/22 and sentiment has gotten increasingly more worrisome. Furthermore, as has been discussed, the choppiness of this decline lately has served to make most momentum “less bad” than was seen back in January. Thus, while downtrends are intact, I expect rallies to turn up within a week.
Most things Agriculture-related still tend to be “Red Hot” right now.
The recent Russia/Ukraine escalation has resulted in grain prices soaring to even higher levels than in recent months. While overbought, the price of Wheat, Corn and Soybeans all look to make further headway higher in the near-term, technically, so this should still be an area of focus
The Agricultural Chemicals and Ag Operations sub-sectors are one way to play this move and stocks like BG, CTVA, CF, NTR, MOS, FMC are all in good technical shape and look attractive.
Other ways of participating revolve around owning the DBA 0.12% (Invesco Db Agriculture ETF) which allows for exposure to the DBIQ Agriculture Index Excess Return index. This is composited of futures of Agricultural commodities and is one way to specifically invest in an ETF that specializes in Agriculture.
While this ETF has already nearly doubled in price since June 2020, further gains look likely to $24-$24.80 which represent the first meaningful resistance to this rise. Given no evidence of any trend deterioration combined with near-term acceleration in momentum and lack of DeMark-based exhaustion, Agricultural commodities still look attractive for the weeks to come.
Healthcare continues to show good near-term relative strength, and Pharmaceutical stocks look particularly attractive after their two-month selloff.
I discussed the long-term breakout in the AMEX Pharmaceutical index (DRG) back in December above levels hit in 1999-2000. Since that time, healthcare has consolidated gains, and stocks like PFE 0.91% , MRK 0.84% , LLY 1.79% have weakened throughout January and February.
This might be coming to an end given the intersection of the current uptrend in DRG from 2020 combined with the minor two-month downtrend, which intersects right above current levels. The act of prices pushing to the apex of an intersection like this typically precedes breakouts and given the defensiveness of this sub-sector and recent uptick in Healthcare relative strength, I’m expecting this breakout to be on the upside. Overall, the three mentioned above: PFE, MRK, LLY, are excellent technical candidates, along with stocks like BMY, ABBV, SNY, and NVS are also ones to consider.
Rallies above 795 should result in a test of 833 near December 2021 peaks. Any rally over that, regardless of when it occurs, is a technical green light for this space, and I expect some strong follow-through higher.
Bitcoin on the Comeback?
As many who are involved with Cryptocurrencies can attest, the trajectory of Bitcoin and Equities largely has been moving in the same direction in recent months. The positive correlation remains quite high, and both BTCUSD and ^SPX 0.91% have started to show some degree of stabilization in recent weeks after pulling back sharply into late February.
I discussed the weekly cycles of Bitcoin a few weeks ago, which seem to still pinpoint a low this Spring. Yet the daily chart has definitely started to “perk up” and should lead Bitcoin higher in a trading bounce into FOMC along with equities in my view.
The daily chart of BTC shows prices having broken the downtrend from November, which was an initial positive. The “Back and fill” type pullback managed to hold January lows and now prices have turned up sharply again. Overall, daily momentum has turned positive, though weekly remains negatively sloped.
The key important area to this chart lies at 45850 from 2/20/22. Any ability to exceed that likely allows for a push higher in Bitcoin that could reach 51k or above at 53,8k into mid-March. Pullbacks, if they occur in the next 3-5 days, are expected to be brief and should hold prior lows at 36368. Under that level would be problematic to the bounce theme, but for now, is not expected.
Bottom line, a bounce in BTC looks likely but until prices can exceed at least 55,7k which represents the 61.8% Fibonacci retracement area of this entire three-month downtrend, and would help weekly momentum start to strengthen, it’s thought that just a tactical trading bounce is likely. This would also gel with weekly cycles still being under pressure. Overall, trading longs look proper, and the extent of the bounce and/or longevity will be revisited in mid-March.
