Key Takeaways

  • Monday’s breakdown has taken SPX, QQQ and DJIA to lowest since at least a year
  • Microsoft’s breakdown of $270 a definite headwind for Equities given its representation
  • Sentiment has been bearish for a few weeks, yet no definite evidence of capitulation  
Despite pessimism, it’s early to call for a Technical bottom

The relentless selloff has continued as this new week has gotten underway, and SPX has now officially broken February intra-day lows on a closing basis, while the DJIA has joined the SPX and QQQ in closing at the lowest levels in more than a year. While sentiment has turned bearish using some metrics, technical structure remains negative, and daily momentum gauges like RSI are not oversold. Bottom line, it’s early to expect a meaningful low. While trading lows might materialize sometime this week, a 100% equality price projection in the decline from late March peaks should allow prices to get down to at least 3950 without much trouble, with 3815 also having significance. My 2022 Outlook call of SPX-3815 into June before a meaningful bottom remains on track and, at present, it looks premature to expect any sort of long-lasting low until real capitulation gets underway. At present, this still looks early with the VIX under March highs, while inflows to speculative ETF’s like ProShares UltraPro QQQ dominated last week.

Despite pessimism, it’s early to call for a Technical bottom
Source: Trading View

Recent Technical Developments

SPX, DJIA have fallen to the lowest levels in more than a year, while NASDAQ 100 has broken its yearly lows for the first time since 2008.

Momentum is clearly negative across all timeframes and not oversold, given RSI levels of 32-33 on daily, weekly charts while monthly RSI is at a 50, clearly neutral. Percentage of SPX names above the 20-day moving average was 20.24 heading into this new week, well above the single digit readings observed back in December 2021 and January 2022.

Nearly 50% of all SPX names are now down more than 20% from 52-week highs. This shows the extent of 2022’s technical damage

MSFT breakdown is a technical negative considering its representation within SPX, QQQ, and pullbacks to 238-241 look possible over the next 4-6 weeks

Treasury yields have gotten stretched, and the 10-year yield likely stalls out near 2018 highs before rolling over. Yields could very well peak out this week and look close technically.

Commodities are showing technical deterioration in momentum in the near term (Energy), while precious and base metals have been steadily weakening and are near-term bearish. Breaks of April lows in Energy ETF’s would warn of near-term underperformance as WTI Crude moves to the mid-to-high 80’s before being expected to rally back in 2H.

Sentiment readings are clearly bearish per traditional gauges like AAII and/or Fear-Greed index and Investors intelligence. Yet no real evidence of capitulation is present just yet, whether it be TRIN readings >2.50, or VIX backwardation, or Equity Put/call readings above 1.

DeMark indicators like TD Combo and TD Sequential on absolute and ratio charts of QQQ/SPY remain 4-6 weeks early before they possibly align with monthly charts to show exhaustion. Thus, near-term, these are not signaling that any near-term low will be significant

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.

Cycles show further downward pressure on US Equities into June, and still early to think markets are bottoming out. Both Gann’s Mass Pressure index (using my inputs) and my own Cycle composite show weakness into June-July, which I initially discussed in my 2022 Outlook presentation on 1/20/22.

Bottom line, a defensive stance remains prudent, and one should be heavily diversified and not overly concentrated, particularly in sectors like Technology which are under tremendous pressure. Opportunities to buy dips should materialize over the next 1-2 months.

Microsoft breakdown puts additional stress on indices

Microsoft’s break of 270 has caused some acceleration lower on Monday, and given its size among the ETF’s and indices, this should result in further selling pressure on the larger indices

Technical trends remain bearish on short-term and intermediate-term bases, and momentum has not gotten sufficiently oversold to argue for a meaningful low.

As weekly charts show, going back over the last few years, MSFT’s trend turned bearish on a break of the most recent 22-month uptrend from March 2020 lows back in January 2022. Prices fell to touch MSFT’s 38.2% Fibonacci retracement before attempting to bounce.

That bounce failed where it needed to near the larger uptrend line and has since turned down and broken March 2022 lows. This keeps the near-term trend bearish and argues for a move lower to 250 with a chance of 238-241 being tested before MSFT bottoms out. The area at 241 lines up with a 50% retracement of the 2020-2022 rally. Additionally, this also represents an Equal-wave extension of the first move lower from last November. Thus, a bit more weakness looks likely for MSFT, but should provide buying opportunities potentially by late May/June.

Despite pessimism, it’s early to call for a Technical bottom
Source:  Optuma

Equity put/call ratio elevated, yet still under prior peaks from 2020, and 2018.

While sentiment has been growing more bearish in recent weeks, the Equity put/call ratio is not yet at levels which produced meaningful bottoms in Equity indices over the last five years.

My thinking is this might have to happen before any sort of meaningful bottom, and breaks of 150 by AAPL might finally result in some higher downside volume. As this chart below shows, Equity put/call was lower heading into this week than it was a week ago, despite SPX having fallen five weeks in a row.

Ideally, one wants to see evidence of panic and/or capitulation from a sentiment perspective before thinking lows could be near, given sentiment, not just bearish AAII data. Further selling into late May should help sentiment grow even more bearish, which would be more useful as a contrarian timing indicator as it reaches extremes.

Despite pessimism, it’s early to call for a Technical bottom
Source:  Bloomberg

Bloomberg ETF flow data shows QQQ and TQQQ with heavy inflows last week, which is odd given the ongoing selling pressure.

Interestingly enough, despite QQQ being down more than 25% off its November 2021 peaks, Bloomberg data shows heavy inflows into QQQ and the more speculative leveraged ETF, TQQQ (Proshares UltraPro QQQ)

This shows that this dip is still being bought, vs. evidence of heavy outflows out of QQQ. In my personal view, it seems rare that investors are adept as a group in buying any asset class down more than 25% over the past six months and are correct in their timing.

DeMark ratio charts still show QQQ to likely have another 4-6 weeks of underperformance vs SPY. Thus, it remains early to buy dips and these inflows will continue to be monitored.

Despite pessimism, it’s early to call for a Technical bottom
Source:  Bloomberg

Bitcoin breaking down coinciding with US, European Equity indices

Bitcoin’s violation of January lows brings it to the lowest levels since last July. Monday’s break also severs a minor uptrend connecting June 2021 lows to January 2022 lows, which is an additional near-term technical negative.

Technically speaking, the attempted stabilization over the last few months now looks to be giving way to a new short-term bearish trend which likely results in BTCUSD testing $28.6k, which represented lows from 6/22/21. However, as weekly logarithmic charts of BTC show below, this remains in a long-term uptrend, and weakness in the weeks/months to come should constitute an attractive buying opportunity on weakness.

Bottom line, two areas stand out as being possible important support on weakness. First, 26.5-28.6k. Movement under this level, however, would cause a more severe decline down to near $20k. This lines up near prior 2017 peaks, as shown by the green horizontal trendline, which also coincidentally intersects the larger uptrend from 2015 lows. Bottom line, near-term trends remain bearish, but opportunities to buy dips should likely materialize at lower levels by end of month.

Despite pessimism, it’s early to call for a Technical bottom
Source: Optuma

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