“And she’ll have fun fun fun
‘Til her daddy takes the T-bird away.” – The Beach Boys, Fun, Fun, Fun
The first quarter has been a roller coaster.
As with all roller coaster rides, some cars are still ratcheting up the slope while others are screaming lower.
Such was the 1st quarter with the NAZ and the growth glamours that reside there striking all-time highs in mid-February and plummeting below its 50 day line in early March where it remains, while the SPX undercut its 50 day line for one day followed by a push to two new record highs in March.
For its part, IWM split the difference between the price action of the other two indices — it dropped below its 50 day line in early March as well followed by a push to new all time highs in mid-March; however, IWM relinquished those highs falling to new lows for the move down last Thursday before rebounding to its 50 day where it closed yesterday.
So we’ve truly got a mixed bag on our hands:
The SPX in record territory.
The NAZ living below its 50 day line.IWM is stuck in the middle right on its 50 day moving average.
While Wednesday was a strong day across the board with the SPX reaching into new record territory, the T-Rex in the ointment is that it was quarter-end.
As well, while the SPX set an all-time high yesterday, it failed to seal the deal with a new record close.
As a daily SPX below shows, the SPX tailed off, leaving two sell setups in the process:
1) A Lizard sell signal, a 10 day high Topping Tail. This is a new 10 day high with an open and close at/near session lows after a runup. In other words, the SPX tailed off closing near the open.
2) The index also left a Soup Nazi sell setup. A Soup Nazi is a new 20 day high that reverses to knife back below the prior swing high within a 20 day lookback… and with at least a 4 day interval between the prior swing high in the 20 day lookback window. I used the 4 day interval when creating the strategy in order to guard against a continuation move. In other words, we’re looking for a high, a pullback and a potential failed test of the initial high.
The SPX came out of the gate strongly on Wednesday courtesy of an NR 7 Volatility Contraction Day coupled with a mini Cup & Handle.
However, the index may have snatched defeat from the jaws of victory with a close below its prior March 17 peak AND close.
It may be that the strength was largely markup mania window dressing.
This is when many money managers try to paint a pretty picture on their holdings for their clientele, showing that they’ve been all over the winners that quarter.
These markups are often unwound early the next quarter. It looks like more than a few players couldn’t wait for April fools.
Moreover, downside follow through over coming hours/days may be significant as breakage by the SPX below the Handle of its mini Cup & Handle will catch the attention of technicians.
Fast moves come from false moves, so a failure back below the Cup & Handle warrants caution as Thursday’s down-draft from near the round 4,000 number may stir up buyer's remorse.
As well, the NAZ is backtesting a declining trendline from its mid-February all-time high.
A downside reversal from here could be powerful as the NAZ has potentially carved out 3 lower highs following its March 16 high.
Sharp declines often play out from 3rd lower highs. This is what I refer to as a Power Surge pattern.
Whether the sell setups on the SPX are triggered today or not, whether the NAZ rolls over immediately from well-defined resistance or we get a Pinocchio of resistance on today’s holiday-shortened opex, under the hood there are signs of deterioration.
In addition to the internal divergences flagged in this space yesterday, the 10 day NYSE A/D Line(advance/decline) at 0.75 represents the weakest 10 day A/D at a market high in history.
In sum, the SPX and DJIA ramp to records in the face of rapidly rising 10 year yields.
I know, I know, rates are rising for the right reasons. Right?
While the Street seems to have accepted a rising ten-year, it has not come to grips with 3% — especially if that projection is satisfied quickly.
Yet that is exactly the takeaway from the big picture TNX I showed a month ago when yields were 1.50 versus yesterday’s 1.75.
TNX has recaptured the breakdown point from 2020 with authority, resulting in yields being magnetized to 2%.
Breakage above 2% opens the door to 3% — potentially quickly.
You see, TNX broke out above 2% in 2018 in tandem with a market top, but reversed in sync with The Powell Pivot.
The first breakout mouse got the squeeze; however, a second breakout above 2% should see the second yield mouse get the cheese.
Friday, we get the jobs report with the market closed. The number is rumored to be strong.
If it’s Jurassic, watch out. Watch yields.
The market is having fun, but Daddy Yields may take the keys away.
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?