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Mag7 Searching for Support

Dictionary.com defines “facade” as “an outward appearance that is maintained to conceal a less pleasant or creditable reality”. That seems like an appropriate term for what we’ve been witnessing. The S&P 500 has been up, but it’s really just been a facade.

And now that facade seems to be crumbling.

The first chart for today is MAGS, an equal-weight ETF that offers exposure to those top 7 stocks commonly referred to as the Magnificent 7. Considering the fact that ~50% of the S&P 500 is currently below their own 200-day moving average, we can say that ~50% of the S&P 500 is in a negative trend. Since the Mag7 has had such an outsized influence on the S&P 500’s performance, the support zone that I’ve highlighted on the chart really needs to hold. Unfortunately, RSI is not showing that it is “oversold” just yet.

International Broke Trend

As I scanned through charts before writing this newsletter, VEA stood out. While it is not been the strongest sector, take a look at how it has hugged that 50-day moving average (red line). Unfortunately, VEA fell below that moving average / trendline on Wednesday … and, it did so on above average volume.

More bad news.

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BioTechs Look Strong

The Investment Policy Statement that we operate under does not mandate that we remain fully invested at all times. However, I know plenty of people in the industry that do not have that luxury. So, if you are required to buy something, here’s an option: biotech.

Unfortunately, we are not in this one – and I’m okay with that as it never met the very specific criteria that we are looking for when we add a tactical position. However, since there are plenty of studies that show the efficacy of relative strength, and this clearly has relative strength, I do see some good news for us: ADX (bottom pane) is suggesting that this trend may pause a bit. If price can pause and create what we believe to be a low-risk entry, I’d happily jump on board. But since it never met our entry criteria, we didn’t buy it.

As an aside, if you do not have a very specific entry criteria, you should consider defining one. Investing successfully over a long period of time comes down to process. That process needs to be well defined.

Not Sexy But Looks Good

Perhaps that’s not an appropriately professional heading, so I won’t be surprised if the editor changes it, but … Utilities are just not something I really want to own. They are typically considered slow movers, not very “growthy”, etc. Why would I want to allocate capital to something like this sector?

Well, this setup looks attractive to me. When we are looking for a “low-risk” entry, this is one of the set-ups we consider. And, given how many ugly charts I see right now, this one does not look bad at all.

Commodities

The final chart for today is a weekly chart for DJP, the iPath Bloomberg Commodity Index ETN. DJP has been on a nice little run since August. If you were to look at the daily chart, it’s been a bit of a sloppy run, and never really created a compelling entry from our point-of-view. However, it’s relative strength has been gaining so I want to pay attention. Considering the fact that commodities typically demonstrate a lower degree of correlation to equities, and considering the fact that there are so many ugly equity charts out there, we might want this in the portfolio.

That said, the last couple of weeks has found DJP bumping up against what could be minor resistance from back in 2022. As far as I’m concerned, I would love to see this pause a bit longer. We’re not buying this here, but we certainly need to note the recent gains in relative strength.

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