Trends remain in short-term stabilization mode after February lows were recently recovered. While the downtrend from January remains intact and weekly and monthly momentum are still bearish, there remain reasons for near-term optimism given cycles, sentiment and some minor breadth improvement, as discussed yesterday. While the relentless volatility continues to make price action seem maddening to non-chart readers, prices continue to show mild stabilization and this still looks to be an appealing area to take a counter-trend stand to this downtrend in my view. Prices closed well up off early lows and finished in the top quartile of Wednesday’s range which is a minor positive. Until/unless 4209 is breached, an upside continuation to 4365 still seems more likely than not, and breaks of this downtrend argue for a much larger rally into March FOMC meeting.
Transports starting to show some promise
Transportation has been decidedly “less bad” this current week, with stocks like UNP, NSC showing excellent strength, and patterns of the DJ Transportation Average having carved out a noticeable base in recent months.
Movement back over 15646 would validate this hourly chart pattern as a reverse Head and Shoulders formation and should lead to a break in the larger downtrend from last November.
Rails, Trucking, Shipping and Air Freight all have a number of attractive names which look appealing despite the downtrend at work in the broader averages. Stocks like UNP, NSC, CSX, JBHT, CHRW, UPS are some of my favorites within the Transportation space technically and remain some of the best within the entire Industrials space.
Airlines, unfortunately continue to be the laggard sub-sector within the Transport space and if it weren’t for the deteriorating patterns in many Airline stocks, the Transportation sector would be in much better shape. It’s thought that Airlines should continue to lag the rest of the space.
Hourly charts of DJ Transportation show this mild recovery effort lately, which has definitely been under less pressure than many Technology names. This group should be favored for a larger bounce unless 14600 is broken, which would postpone the rally.
Chinese Technology- Is it so bad, it’s finally good? This has been a disappointing area for performance in the last couple months, which I introduced as an intermediate-term long idea in January’s Technical Outlook webinar. Charts of KWEB 0.60% are shown below (KraneShares CSI China Internet ETF) which include many of the most prominent Chinese Technology names, such as BABA 2.02% , TCEHY, and BIDU 0.70% . The break of January lows caused acceleration lower, and China has not been an area of focus lately given the ongoing carnage being seen in Emerging markets due to current geopolitical tension.
Near-term, I would argue that prices are getting close to technical areas of support based on three factors: 1) Wave structure 2) Positive momentum divergence and 3) Volume capitulation.
In Thursday’s trading we saw volume escalate to the highest level of the year, while price closed right near the lows of the day. (Some of this likely was due to JD 1.20% decline). That can often be a sign of longs exiting at precisely the wrong time, and I think it’s right to be on the lookout for a bottom in the next week.
Positive divergence is now at play with momentum failing to follow prices to new low territory, but key will be for prices to move back up over $31.62 from late February to have conviction in this starting a larger advance. Near-term, prices remain quite negative, and I’d stress that it’s wise to keep stops tight for those who are more short-term oriented, looking to add back when this starts to act a bit better.
Overall, I am not advocating abandoning Chinese Technology, but simply to keep the size small for positions like this that are not working right now. This continues to be an area of intermediate-term focus, so I’m less inclined to try to time exact lows for traders, but rather to suggest setting alerts for when this climbs back over $31.62. That will be an area to add to longs. At present, KWEB remains negative, but technically there are reasons to suggest this might bottom out in the near-term.
Bitcoin trading range favors following the breakout – Technically speaking, Bitcoin continues to churn within a sideways consolidation pattern in the near-term, as part of a negative downtrend from early November 2021. Its recent stabilization is similar to what’s being seen in US stock indices lately, but some pattern resolution will be important before having conviction in trends moving in any direction. The positive correlation to the NASDAQ looks to be ongoing for Bitcoin, though arguably BTC has held up better since the beginning of February.
Overall, daily BTCUSD charts show the breakout attempt into February giving way to sideways consolidation, and given the sideways churning being seen in recent price action, it will take breaks of either side of this pattern to bring about some acceleration in either direction. Momentum has slowly improved since early January 2022, yet insufficient upside gains have occurred to argue that rallies are imminent. My cycle composite shows lows for Bitcoin materializing this Spring with key months for a low occurring between April and May 2022. However, near-term, one cannot rule out a bounce into mid-to-late March, and a rally in Equities into the March FOMC meeting likely would also coincide with Bitcoin rallying in the short run.
Two key areas should be watched carefully: 1) 45332 which represents March’s intra-day highs. Any move above this would help resolve this consolidation and help prices extend to $51,000 which is the 50% retracement level of the decline since November 2021. Additional upside targets lie just above $55,000. Conversely, breaks of 34,324 would be negative technically, suggesting downside acceleration is likely into April to test last summer’s lows. Key support in this case lies at $28,500-$29,500. Overall, given the ongoing choppy range-bound consolidation, it’s imperative to wait for the breakout to occur before having much conviction, and for now, prices remain range-bound.
