Key Takeaways
- Friday’s rally helped the week finish on better footing, though still requires more upside to trust that it’s not just a bounce to sell into.
- TLT looks to be bottoming out, and Friday’s minor Treasury decline should be buyable
- Bitcoin and other Cryptocurrencies have shown signs of holding last Summer’s lows. This looks like a short-term tradable low, with stops at this week’s lows.
Friday’s bounce managed to cut this week’s losses nearly in half, but despite the massive upside volume, overall volume was sub-par and more will be needed to think even minor lows are at hand. Hourly SPX charts below are helpful towards putting this recent decline into perspective, and prices should face meaningful resistance up near 4100, which intersects the former early lows from May while above lies meaningful downtrend line resistance. This rally should take the form of a three-wave ABC type bounce before retesting lows. If/when downtrends are broken, and AAPL, MSFT recoup $150, $270 respectively, one would have more conviction that more meaningful lows could be in place.
Technical Developments this past week & what’s ahead
Foreword: It’s always tough to know whether to trust a sharp bounce within a downtrend. Many who like trying to buy dips always feel like a bounce should turn into a larger rally. However, as we’re all aware, buying dips within intermediate-term uptrends is a far different than buying oversold conditions as part a sharply downtrending tape. Thus, while there were a few signs that an oversold bounce could be close (and as I phrased it last night, “Might start early next week”) this now looks to be underway. It’s normally a poor practice to chase a 2% bounce within an existing downtrend, and my guiding principle is as follows: “Until markets show evidence of breaking downtrends, or produce signs of capitulation and outsized selling on big volume and/or confirmed exhaustion signals per DeMark’s TD Sequential and/or TD Combo indicators, it’s just difficult to make anything of this move.” Overall, until there is sufficient evidence of either meaningful technical progress on heavy upside participation or signs of the QQQ behemoths like AAPL and MSFT regaining areas of recent breakdowns, I’m afraid this will still be a bounce to consider selling into, and not much can be made of it. A few relevant technical points are below.
SPX, NASDAQ and DJIA all rallied sharply on Friday to cut this past week’s losses nearly in half. Indices were set to record the largest weekly losses since January, but Friday’s rebound certainly helped make this less negative.
Index heavyweights AAPL and MSFT both broke down to new multi-month lows over the last week, something which is a noticeable headwind for the indices until these areas at monthly lows that were violated can be recouped
Treasury yields could be breaking their positive correlation with US Equities, given evidence of Yields rolling over while the Equity downtrends remain intact.
Treasuries look to be bottoming and long exposure in TLT looks attractive into June.
Heading into 5/13, SPX showed only 11% of all issues above their respective 20-day m.a.
Nearly 60% of all SPX issues are now down 20% or greater from 52-week highs.
Momentum indicators like RSI are finally hitting oversold levels, defined as RSI readings of 30 or under on a weekly basis. However, given the various rally attempts and not a washout like January, Daily RSI has not reached levels seen back in January. As we all know, buying indices when they first turn oversold, or selling new overbought readings, can prove frustrating.
DeMark indicators failed to signal any meaningful evidence of exhaustion on daily charts of SPX, QQQ, DJIA which look to be 3-4 weeks away on a weekly basis. Thus, it wouldn’t be surprising for this rally to fail and turn down into June before a more meaningful low.
Cycles still focus on June as being a key month when cycles could bottom out for US equity indices, and this is based on both Mass Pressure index and my own cycle composite.
Overall, while the temptation is to try to chase rallies for fear of missing the bottom, the better strategy normally is to await more convincing evidence of technical stabilization or capitulation Given that SPX came within a whisker of being down 20% from 52-week highs before Friday’s session cut the weekly losses down to -2.5%, it’s proper to await a breakout above 4100 initially. Thus, markets lie in “No-Man’s Land” here, making them difficult to chase. A breakdown back down to 3815, the 38.2% Fibonacci retracement of the rally from March 2020 into January 2022, would represent a stronger level of support to buy into. Furthermore, pullbacks to this level could likely help Daily DeMark indicators line up, showing downside exhaustion. At present, this has not yet happened. Stay tuned.
iShares 20+ Year Treasury ETF likely to rally after finding support near 2018 lows
As part of our discussion on Treasuries rallying into June, it’s worthwhile to examine charts of TLT, which looks to be turning higher after a successful retest of 2018 lows.
TLT made a low this past week at 112.62 on Monday 5/9/22. This was important given that it came within striking distance of 2018 lows of 111.92. While it can’t be ruled out that these levels are retested next week, such a development would result in daily DeMark exhaustion lining up with the current weekly 9-13-9 formation on weekly charts. This would be sufficient to consider as a meaningful level of support, and traders should consider adding to longs on any minor weakness into early next week.
My cycle composite for Treasury yields also turns down sharply into June, adding an additional layer of a different discipline, which suggests Treasury yields should roll over. TLT charts are below, and I like positioning long here, adding on dips in TLT.
Gold cycles look to be rolling over
This was initially discussed earlier this week, but my cycle composite also suggests that Gold likely pulls back into June of this year, and it appears early to buy dips.
The trading day cycles of 228 days, 114 days and 145, when added together within a composite, marked the peaks in 2020, the peak in 2021 and now are peaking in Spring of 2022. This same composite also nailed the lows in early 2021 and turned sharply higher into early 2022, directly coinciding with the big rally in precious metals.
Overall, it looks right to stand aside at this point and hold off on buying pullbacks in Gold until the Fed meeting in June. Aggressive traders might wish to short the metal via ETF’s or futures, but precious metals, and Gold specifically looks to have a high likelihood of pulling back over the next month. This directly coincides with real rates pushing higher, which have shown negative correlation with Precious metals in recent years.
Bitcoin could be trying to make a Stand near last Summer’s lows
Last, but not least, BTCUSD could be starting to bottom out, precisely at a time when sentiment has turned quite bearish on cryptocurrencies. While the correlation remains quite strong and positive with Bitcoin and the NASDAQ, it’s interesting that prices have started to stabilize in recent days right near 2021 lows.
Traders could attempt to position long, looking to add on a daily close over $31k while placing stops under Friday’s lows.
Unfortunately, if the equity rally turns back lower and Bitcoin follows suit for possible weakness into June, when many cycles bottom, this might postpone a rally, and likely coincides with BTC pulling back to near $23k or even $20k before bottoming out.
Cycles show upside trajectory for Bitcoin between May and November. However, it’s tough to trust Bitcoin rallying if Equities are weak, until this correlation can be broken. Furthermore, the weekly chart still looks quite “heavy”, technically speaking, and doesn’t look all that appealing until/unless BTC were to climb over $37k.
One additional positive involves DeMark indicators like TD Sequential showing daily “13 Countdowns” now, which would be confirmed on any daily close over $31k into next week.
Bottom line, one can make the case for a possible trading bottom only, given factors like near-term oversold conditions, bearish sentiment, and meaningful support from last year which seems to have held on a weekly close. Counter-trend “buys” based on DeMark exhaustion might be confirmed over the weekend above $31k and would be a positive. This is a tentative setup only within a downtrend, and more needs to happen to have conviction in longs. However, enough is present from a trading perspective to consider taking a stab on the long side with tight stops ( for those that choose to use them). Have a nice Weekend !
