A Notable Relative Strength Divergence

By:

President of Blue Line Futures

Daily chart of QQQ/XLP, highlighting yesterday’s relative strength.

Daily chart of QQQ/XLP, highlighting yesterday's relative strength.

Source:TradingView

E-mini S&P (June) / NQ (June)

S&P, yesterday’s close: Settled at 4151.00, up 23.50

NQ, yesterday’s close: Settled at 13,073.00, up 221.00

Fundamentals: Yesterday brought a sincere test of our measured downside and U.S. benchmarks responded. From a low of 4056, the S&P rallied 2.3% in the final 80 minutes. However, it was not the S&P that stood out most, it was beleaguered Tech. While the S&P lost as much as 1% from its opening bell range into that low, the NQ lost just 33 points or one-quarter of one percent. Although the NQ’s rally of 2.9% into settlement was merely in line with the S&P, the technical groundwork and the relative strength against Consumer Staples was significant. XLP, the SPDR Consumer Staples ETF, finished down 1.3% on the heels of a 2.72% loss Friday. Mounting two-day losses in Staples is a very similar pattern to February 23-24 and March 7-8, where significant bottoms in the S&P became. Of course, March 8th chopped around into March 15th. This type of relative strength in Tech, highlighted in the chart above, did not take place in the short-covering rallies last Monday or Thursday, and leads us to believe this has the potential to be a real turning point for equity markets.

The Federal Reserve begins their two-day policy meeting today and concludes tomorrow at 1:00 pm CT. The market is pricing in a 50-basis point hike with a 98.7% probability, but market participants certainly fear a more hawkish tone. The yield of the U.S. 10-year hit 3.01% in a four-day climb ahead of the decision. What if they are not as hawkish as participants fear? Remember, in March they were hawkish, but their message was well-received, simply because there were no surprises.

Technicals: Considering the relative strength in Tech described above and the test of our measured downside in the S&P, we are establishing a more Bullish Bias. It is greatly important that major three-star supports hold; defined as our first supports detailed below. All near-term bets are off if these levels are violated decisively. Make no mistake, these markets are not in the clear and the S&P is still trading at the low end of last week’s range. Continued positive developments technically are necessary. That starts with a decisive move and firm close above the overnight session high, which happened to be contained by major three-star resistance at 4178.50-4182.50. Ideally, the S&P and NQ can close back into last week’s range and above major three-star resistances at … Click here to get our (FULL) daily reports emailed to you!

Crude Oil (June)

Yesterday’s close: Settled 105.17, up 0.48

Fundamentals: Crude Oil is holding onto the bulk of yesterday’s rebound, but certainly consolidating after being contained by resistance. BP reported earnings today and the stock is trading higher by 5%, but it was comments by the CEO that caught headlines. He said the impact of sanctions on Russian Oil will double to 2 mbpd. Cooling the rally are also reports last night that Hungary and Slovakia may be exempt from banning Russian Oil. OPEC+ and U.S. inventories will begin making headlines. Early expectations are for -1.167 mb Crude, -0.25 mb Gasoline, and -1.167 mb Distillates.

Technicals: Yesterday’s rally traded to a high of 105.94, exceeding major three-star resistance at 105.23-105.64, but stopping short of 106.12-106.50. These levels have been adjusted and are noted below. As we discussed yesterday, the failure last week and overall sideways range has created several thick layers of resistance that price action must chew through. Regardless, yesterday’s tape was very encouraging for our continued cautiously Bullish Bias. Ideally, price action can battle to hold out above first key support at … Click here to get our (FULL) daily reports emailed to you!

Gold (June) / Silver (July)

Gold, yesterday’s close: Settled at 1863.6, down 48.1

Silver, yesterday’s close: Settled at 22.584, down 0.501

Fundamentals: The U.S. Dollar’s broad strength, coupled with the 10-year’s four-day push to 3%, has created immense pressures on both Gold and Silver. Yesterday’s bloodbath was two weeks in the making and should mark a consolidation point ahead of tomorrow’ Federal Reserve policy decision. We believe markets and participants are preparing for a more hawkish announcement and this opens the door to a relief rally in Gold and Silver. Yesterday’s ISM Manufacturing data cannot go unnoticed, especially on the heels of last week’s Q1 GDP contraction. Manufacturing slipped to 55.4 in April, from 57.1 in March and below the 57.6 expected. Also, the ISM Manufacturing Employment component slipped to 50.9, a near contraction, versus 56.0 expected. Considering this, once currency markets settle and the U.S. Dollar’s ascent due to such safe-haven factors are halted, it paves the way for continued strength in Gold.

Technicals: Price action in Gold and Silver is attempting to work back to yesterday’s rebound high. For Gold this brings a resistance at 1872 and Silver 22.81-22.89. Price action did find a support level to respond to yesterday, but a continued consolidation higher is needed. In order to even begin neutralize yesterday’s selling Gold and Silver must clear major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!

Originally Posted on May 3, 2022 – A Notable Relative Strength Divergence

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