Good evening,
This was not a good week, to say the least. All four major ETFs were down for the first time since mid-May:
In general, all of the charts below put in high-volume red candles. This is sometimes indicative of a short-term bottom, so I’ll be watching for a potential rebound this week.
After that week, the downward stride did come to a convincing halt, and QQQ saw 8 straight green candles. This time around, the volume isn’t as convincing but is still relatively high on IWM and DIA. Small caps seem to be approaching a significant support level via the 4-hour PnF (see today’s options update - link here).
Market ETF returns:
SPY: (-0.96%)
QQQ: (-0.94%)
DIA: (-0.57%)
IWM: (-5.05%)
The bears didn’t limit the damage to equities. Oil, metals, and some basic materials took a hit:
Oil: (-3.86%)
Silver: ( -1.70%)
Lumber (random length futures): (-28.94%)
SPY:
QQQ:
DIA:
IWM:
Oil (WTI):
As expected two weeks ago, this is under a big resistance level from 2018.
Silver:
Now trading below the 30-week SMA
On May 16, I highlighted Lumber and the Philly Housing Sector Index (link). At the time, I noted lumber had achieved the PnF objective; since then, lumber has been in free fall.
I also pointed out the Philly Housing Sector Index (HGX) was just underneath a big resistance level. However, since that post, I have discovered an additional ticker on Tradingview for HGX that seems more accurate. Strangely, Tradingview has two tickers, but the previously used had a gap in the data around 2008. Below I’ve pulled the data for the other HGX ticker, which seems to be complete without the gap. It shows a much different picture, with prices ABOVE that key resistance.
Lumber (Random Length Futures):
In free fall, now trading back in the prior range, below the 30-week SMA
Philly Housing Sector:
Pulling back, and now (barely) under the 30-week SMA.
BPSPX:
A note about BPSPX:
This has been a handy indicator when trying to gauge the bigger picture market moves. In bull markets, bounces off the 47-53 area are common. The way I learned it, deep moves from below 30 straight up to 70 are good indicators of new bull markets. The confirmation comes on a pullback to the 47-53 area, followed by a bounce-back above 70. All of those things happened after the March 2020 selloff.
BPSPX recently dropped back below 70, on its way towards the 47-53 area. It doesn’t need to get all the way down to the 50 level, but it is quite common to do so. I’ll continue monitoring this and update if/when that bounce happens.
A break below 47 usually indicates trouble lies ahead.
Bitcoin:
This is approaching a big decision, and I suspect very soon. Shown on the daily chart above are:
365-Day SMA
Volume Profile with POC
Two high-demand areas (via low wicks)
This is all happening while the volatility is rapidly decreasing.
Bitcoin ATR%:
ATR%, my favorite tool for measuring volatility.
The volatility has been dropping, similar to the March 2020 recovery (and all prior bull market recoveries). During the May 2021 pullback, the ATR% never exceeded 15. At the time, I believed that would be a good sign the major bull cycle was over. I still believe that will be the “tell” for the end of this cycle. I know this has been a painful 2-months for many, just based on the social media posts I see. I think the market’s decision is coming soon, and I still suspect it will be to the upside.
The volatility can continue to drop lower, causing even more pain, but eventually, the decision will come. By that point, the tape should be tipping its hand in the next direction. Losing the 365-day SMA, for example, would be another victory for the bears. Dropping below the $27.7k area would be another major victory.
If the bulls can recapture $37k, and as a result, the 50-day SMA, that would be the first major victory for the bulls in a long time.
Right now, looking at the tape, I see a lack of conviction from either side. The decreasing volume & volatility on the pullbacks seem to give an edge to the bulls (absorption of supply). The tape is coiled for the next move, and it should be an explosive one.
Have a great week!
Cheers,
Trace