Thursday’s CPI report could be the most volatile time this week, with SPX at-the-money straddles pricing in a 2% move. As discussed, the hyper-weakness in Technology combined with the uptick in cross-asset volatility have most market participants wondering whether this will metastasize across global risk assets or largely be contained to severe weakness in crypto-currencies only. Wednesday did show excessive volume in declining issues which caused a 2.4 reading in the Arms Index (TRIN) which normally suggests trading lows are close. However, an elevated CPI report would be thought to lead below SPX 3700, which in view should result in a test of October lows. Conversely, any gap above 3786 would give thoughts that a short-covering bounce could ensue, with more conviction above SPX-3861. Bottom line, until evidence of strength occurs, and/or sufficient downside exhaustion signs in QQQ/SPY or IVW/IVE, it remains right to hold off on fighting this downtrend until proven wrong. One should have a close eye on 3700 on the downside and 3861 on the upside as both of these areas are key.
Growth vs Value broke five-year uptrends, but remain above long-term trends which could offer support in 2023
As might have been expected, the recent drawdown in Technology affected the ratio of Growth vs Value quite substantially. Just in the last couple weeks, we’ve seen a breakdown under May 2022 lows in $IVW (IShares Growth ETF) vs. $IVE (Ishares ValueETF) in ratio form.
This had held the prior six-year uptrend up until late October, and has since broken this uptrend which clearly favors Value over Growth. Much of the recent outperformance in Energy and Financials might suggest a similar picture at a time when Technology is rapidly losing ground.
It’s worth pointing out that Large-cap Growth vs Value which is largely what these ETF’s measure, had largely held up above long-term uptrends in much better shape until the month of October. The break under May lows puts Large-Cap growth in a much weaker position than either Mid-cap or Small-cap Growth, which remain above May lows.
In the months ahead, we see that long-term trends intersect at lower levels, but have been in place for more than 15 years. Thus, while the near-term trend for Growth vs Value is certainly negative, this looks to be something which should offer an attractive risk/reward opportunity to buy dips into 2023 on further weakness. At present, favoring Value still makes sense.
$QQQ vs $SPY weekly exhaustion still appears to be 1-2 weeks away
As might have been expected given abnormal weakness in Technology, the ratio of $QQQ vs. $SPY just broke down under Spring 2022 lows as well when looking at weekly charts on Symbolik.
This weekly chart showed a successful “13 Countdown” buy signal back in May on QQQ vs SPY, but has been persistently weak since the Fall.
At present, this looks to be within two weeks away from producing downside exhaustion using a combination of TD Sequential and TD Combo indicators on a weekly basis. Thus, while many are focusing purely on daily QQQ charts, I’ve found it always quite useful to study weekly charts, both on an absolute basis and also relative when expecting a larger change of trend.
In this case, it clearly still looks early. However, this could be in place by the end of November, and would argue for an above-average period of outperformance by QQQ over SPY.
Bitcoin breakdown likely leads to 13k before any support
The carnage seen in Cryptocurrencies over the last 48 hours has truly dwarfed anything in US or international equity indices, and we’ve experienced meaningful breakdowns back to new lows in quite a few of the majors and Alt-layer 1s to new lows for 2022. Bitcoin as shown below rapidly turned lower on Monday 11/8 and violated support going back since June 2022.
This takes prices down to the lowest levels in more than two years and selling has occurred on the highest volume in at least six months. This is a technical negative and should lead to additional downside in prices to support targets initially near $13.1-13.5k range. This initial level would equate to a Fibonacci-based 38.2% alternative retracement of the prior March-June 2022 decline along with a 100% alternative projection to the November 2021-January 2022 pullback and should be important.
Breaks of this given the abnormally high volatility seen during these declines can’t be ruled out and $9.96k-$10k would also have importance as a 50% alternative retracement of the same prior Spring 2022 decline. To have confidence that $BTCUSD might be bottoming before it hits these aforementioned targets, a weekly close back over $18,600 will be necessary.