The near-term rally has begun to show some evidence of stalling, though one still can’t make a firm case that a reversal is underway, nor that this recent rally has negated the potential for a selloff into April. DJIA showed some evidence of reversing right near its key downtrend line Monday given selloffs in BA 0.07% DIS -0.96% HD 0.67% , MCD -0.10% , stocks which have all been lower by 2%+ over the last month and are lower YTD. Given that many focus on the SPX, key resistance for this lies near 4495-4500 and then 4550-5 is quite important on any retest in the next couple days. Daily DJIA chart is shown below with prices having rallied into key levels.
Energy still showing no evidence of having peaked
Following more than a 20% decline in WTI Crude in less than a week, many expressed concern that Energy might have peaked relatively speaking, and should be turning lower. I discussed last week how WTI Crude had pulled back right to key support and this shouldn’t be looked at as any major decline which might persist.
Similar to WTI Crude, prices of many Energy-related stocks also failed to show much damage and now have turned back to within striking distance of new all-time highs. This remains constructive price action, and one should stay long Energy, particularly XOP as Exploration/Production names are starting to outperform.
Overall, the volatility in most commodities is ongoing, but trends remain solidly positive and it still looks right to favor Energy along with Materials as two groups which should weather any minor consolidation quite well. Both should be overweighted for further strength for 2022.
Daily charts of the Invesco Equal-weighted Energy index made a discernible three-wave decline before bottoming and then subsequently taking out former lows as it pushed higher last week.
This was the first key confirmation that the minor consolidation had run its course and a push back to new all-time highs was likely. Stocks like PXD, EOG 1.36% , HES 2.70% , FANG 1.11% , and VLO 5.01% are particularly attractive and should be overweighted for the days/weeks to come as this Energy outperformance continues.
Small-caps start to stall out after February’s bounce into early March
This area was expected by many to start to strengthen materially into Spring/Summer as Small and mid—Caps joined Large-Cap in showing a more robust comeback, which might lead back to new all-time highs.
Unfortunately, this message is not at all clear when examining either absolute or relative charts (shown below) of the Russell 2000 ETF, IWM 1.50% vs SPX in ratio form.
The ongoing downtrend from last February remains very much intact and this relative chart below of IWM 1.50% vs SPY 0.40% has begun to stall after recent strength from February into early March. Bottom line, favoring Large-Cap makes sense given the ongoing downtrend over the last 13 months ongoing in IWM/SPY, and also looking at favoring Value over Growth, anticipating that last week’s bounce in Growth also is not that meaningful.
Treasury yields getting very close to meaningful long-term resistance
Today’s hawkish comments from Powell sent yields soaring, yet this area is considered a poor risk-reward for those betting on higher rates. Both the near-term Daily charts from Symbolik now show TD Sequential and TD Combo Countdown “13 Sells” on ^TNX -0.66% on this push above 2.30, and long-term weekly and monthly charts show meaningful resistance directly ahead. The main area of interest to buy US 10-Year Treasuries lies near 2.50% in yields, which lies at the intersection of 15-year charts and long-term 40-year monthly charts showing the long-term downtrend in rates since the early 1980’s.
Overall, it’s anticipated that a downturn in rates should be getting underway in the days/weeks ahead given a combination of long-term trendline resistance, coupled with bearish cycles on yields which start to turn down more meaningfully in the month of April. Furthermore, owning TLT 0.07% is appealing here in my view technically speaking for anyone with a timeframe of more than a few weeks.
