Good morning, everyone.
It was yet another week filled with big daily swings. Doing a weekend review is ideal as we reduce a lot of this noise and maintain perspective.
In this post, we’ll look at the broad market first, then risk-on sectors, and finally risk-off sectors. Let’s dive in.
Here are this week’s biggest ETF movers:
SILJ, XME, GDXJ, URNM were up 11%, 9%, 9%, and 8% respectively
UNG, LIT, RSX, QQQ were down 12%, 5%, 4%, 3% respectively
And here’s where our ETF leadership board stands:
IWM, Weekly. Small-caps tagged an important resistance level this week. Perhaps the mini-rally over the past couple weeks was fuelled by the AAII net bulls recently hitting a level of pessimism that we’ve only seen a couple times in the past decade (’16, ’20).
But now, not only is IWM (and several sectors we’ll look at next) facing big resistance, there’s also an overhang of bearish divergences.
Consider that the S&P 500 peaked only 6 weeks ago while:
QQQ peaked a week earlier and IWM peaked 2 months earlier
Nasdaq Cumulative A/D line, EEM, and HYG:TLT all peaked roughly a year ago
How to interpret bearish divergences: In advance of a broad market correction, institutions sell their riskiest assets first (small-caps, emerging markets, junk bonds) before working their way towards the safer, more liquid names.
OK, let’s look at specific risk-on sectors now.
BUG Weekly. Cybersecurity is a leading sector within tech. It’s facing 15-month resistance. A close above this line would be very bullish. Individual names within this ETF (eg. PANW, FTNT) look good.
A lot of individual smaller growth stocks have also run into major resistance. For example, here’s ROKU Weekly.
Stocks like PYPL and FB continue to be in free-fall after getting hit hard on earnings 2 weeks ago. Meanwhile, monthly charts for GOOGL and AAPL are still very constructive.
Energy & Industrials
Oil is unquestionably the sector with the highest relative strength. And we’ve seen multi-year breakouts in names such as CNQ, IMO, and ENB.
However, a few names such as TOU and CVE have run into important highs from 5+ years ago after big 8-10x moves from their ‘20 lows. Here’s XEG Monthly (Canadian oil sector ETF) facing long-term resistance, as I pointed out 3 weeks ago:
Uranium posted a solid week. However, I wouldn’t get too excited until UUUU Weekly can clear this 1-year resistance level:
Dow Railroad Index, Weekly. Breaking down.
Add to the 3 charts above the following cautionary signs for the inflation trade:
Natural gas is now down 28% after peaking 2 weeks ago
RINF (an ETF tracking inflation expectations) peaked 3 months ago
Baltic Dry Index peaked 4 months ago
Canadian Dollar and copper both peaked 9 months ago
Before I sound too bearish, I want to note that charts for industrial material stocks (rare earths, steel, copper) look a lot better, with many sporting false breakdowns. See weekly charts for X, ALB, and AA. Also, the SLX monthly below is showing a strong bounce after a 10-year base retest.
Financials are struggling a bit here.
BLK Weekly is retreating after hitting resistance. MCO looks very similar.
Also, GS and MS weekly charts stalled at resistance this week.
Almost 2 weeks ago, I tweeted that both BTC and ETH hit their lower weekly Bollinger Band and that this could lead to a short-term bounce. After a 15%+ rally, I followed up on Monday showing that various cryptos were now facing major resistance.
This sector has since stalled. Here’s XMR Weekly at resistance. Weekly charts for SOL, MATIC, and UNI are similar.
BTC:GOLD Weekly. Also facing resistance.
Risk-off assets: Gold & Bonds
The previous chart segues us nicely into this section.
I have been discussing gold very positively in the past couple blog posts. The gold quarterly chart, as well as monthly charts for several GDX leaders have been very bullish for some time now.
This week’s strong action could be confirmation that we’re starting a rally that has legs. I’ve had 2 failed attempts at going long this sector already (Dec 2020 and Oct 2021), but perhaps third time’s the charm. The additional few months since my last long attempt has allowed this sector to complete wedge patterns & build energy. For example, here’s a custom index of GDX leaders coming out of a completed wedge:
GFI Weekly. Breakout. See also weekly charts for NEM and NGD showing breakouts.
Note: Last week, I posted the chart for KL showing a false breakdown – unfortunately, we can no longer track that chart as KL got acquired by AEM.
GDX:SPX Weekly. Relative to the S&P 500, Gold miners are lifting after hitting 7-year support. 3 weeks ago, we also saw how the SPX:Gold ratio hit 60-year resistance.
XGB Monthly. This is the equivalent of IEF in Canada. Government bonds are on support.
A couple additional items to support the bullish thesis for risk-off assets:
Commercial hedgers remain very long bonds and precious metals (especially palladium & platinum).
While TLT has been weak, both the XLP:XLY ratio and gold have held strong (bullish divergences).
We covered charts for various risk assets including:
Tech, energy, industrials, and financials
Many charts in these sectors are at major resistance levels while the list of bearish divergences has been growing. One exception is industrial material producers (rare earths, steel, copper) which have constructive-looking charts.
Meanwhile, risk-off assets (bonds & gold) are showing a lot of promise. Several gold miners are breaking out, while bonds are hitting major support. Positioning and bullish divergences are supportive of these assets.
My thinking has been that any strength in bonds from here could help growth stocks to outperform, but we’ll need the price action to confirm.
That’s all for this week, thanks for reading!
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.