QQQ – Very Strong
Dow Jones has been selling off all of last week, but as long as QQQ and SPY stay strong, we are not going to see any deep pullbacks or correction. And that is exactly what is happening at the moment. Qs are very strong, heading into this crazy week with FOMC, GDP and Core PCE. We are seeing a DOJI candle show up which should be watched closely as a series of these candles do put trends into question. But so far…so good!Â
DIA – Last Week’s Chart
I am pasting this chart from the beginning of last week when DOW Jones (or DIA In our case) started showing signs of weakness. My first downside target was 440 which represents a tiny 2% pullback. That target has now been reached.
DIA – This week
I have shown two downside targets for DOW Jones. I am basing these on the assumption that Powell, GDP or Core PCE don’t give the markets any ugly surprises. Since we have already breached the 2% pullback, the most likely support area where we could get a bounce is that 4% pullback. This area also represents the beginning of the post election gap.Â
The final target down there at 6% is your post election gap fill and I highly doubt that we are going to get there before we see a bounce.
RRG charts – Still bullish
RRG charts (i.e sector rotation) still shows that all the sectors that need to be in the leading quadrant for a rally to happen are already there. We are just waiting for XLK (i.e tech) to join in for a face ripper rally. This picture will update on Monday and I suspect we will see slight weakness due to the pullback we are seeing in Dow Jones.
Divergence Signs
Let us talk divergence. See notes on the charts below. Except $DXY, everything seems under control.
Macro Events – FOMC, GDP, Core PCE
All the action next week is concentrated between Wednesday and Friday. There is a 96% chance of a rate cut, but the slightly hotter PPI has thrown a wrench into those plans. The FedWatch tool (shown in the picture) is usually highly accurate, with almost 99% accuracy. However, the risk lies in the possibility of a rate pause, which could disrupt market expectations, forcing a readjustment to the new outlook. This makes Wednesday a nail-biter. Additionally, Jobless Claims, GDP, and PCE data later in the week will keep market volatility elevated, with Core PCE being the most critical of these indicators.
EARNINGS
MU is bound to have some effect on semis. FDX usually gives a peek into the health of the economy and retail sector. Outside of that it is just humdrum stuff.Â
