Contrarian Perspective – March 23, 2020

 

Contragauge is attempting turn up from the extreme end of its range. Last week’s low of 76 degrees will not likely be broken anytime soon. Readings beneath 50 degrees are never likely and would only occur during a nuclear war type situation. Therefore, given the series of low readings the past week, we are confident capitulation has occurred, and now it is just a matter of waiting for the bounce back, and once it starts, it will likely extend.

Readings last week: Monday 79.3, Tuesday 84.7, Wednesday 76, Thursday 97.7 and Friday 92.3 degrees.

Note Tuesday’s P&F Analytics report will go out on Wednesday, along with an update on gauge readings.

 


Indexes

The S&P 500 has breached the low from December 2018 but has not shown downside follow-though, and that is encouraging. A major shakeout may have occurred and that will only be confirmed once trading returns above 2400. Bullish divergences are forming, such as momentum, the 14-day RSI.

The Bullish % for the S&P 500 also shows a bullish divergence. Incredible is the recent 12th March low of 1.63% – lower than all readings during the 2008/09 crisis (a low of 2.03% on October 10th 2008).

 

 

The S&P 600 Small Cap Index has fallen within a point of its low from 2016. Ideally, a break of that low would be desirable, to shake-out the remaining dead-wood. As with the large caps, bullish divergences are appearing, a sign of waning selling pressure.

The small caps bullish % also shows a similar bullish breadth divergence to the large caps. Furthermore, the recent low of 2.82% on March 12th, breached the lows from the 2008/2009 crisis (5.63% on 10th October), an indication of just how intense the recent collapse was.

 


ETFs

The SPDR Gold ETF is finding support across the $140 band, with a failed break of the 2019 lows hinting at a 3SR scenario. Momentum, the 14-day RSI, is oversold, poised to kick-up. The 2020 relative line ratio maintains its uptrend – a reason alone to remain long the GLD.

The P&F chart shows the general uptrend of the past 5 years remains, further highlighting that medium-term floor. Although on a sell signal, there has been no subsequent signal, $136 needed for a further Double Bottom but that could well turn out to be a trap should it occur.

 

 

Over the past several sessions the iShares TIPS Bond ETF has reversed across the floor of an eight-year range. March 12th, a date which saw many historic numbers across various indicators, broke the floor but abruptly snapped back, resulting in a 3SR. Move underway back to the range ceiling, though likely a choppy one.

The TIP P&F chart is fairly relaxed in appearance. Recent weakness merely tested the range floor and recovered. Buy signal from August 2019 holds.

 


Contrarian Stocks

Chevron has breached its 2008 low, sinking to its lowest level since 2005. The price is attempting to recover, the on-balance-volume indicator shows a bullish divergence, with the MACD at a record oversold extreme. Risk could be limited to just under the recent lows should the recovery resume this week.

The CVX relative ratio, against the NASDAQ 100, illustrates a deep overextended column of Os dating back to October last year. That column terminated on Friday, with an oversold relative bounce commencing. The relative turn is against the NASDAQ, adding significance.

 

 

CarMax has fallen back to a support shelf across $40, drawn across from the 2016 low, briefly breaching. The MACD is an oversold extreme, reflecting the severity of the sell-off. The relative line ratio, against the S&P 500, sits across a ten-year shelf.

The KMX P&F relative ratio has unwound to the lower end of a rising five-year channel against the NYSE Composite. Strong chance of a relative recovery from here. Thinking back to the financial crisis of 2008, the used car market strengthened, that may well repeat given developing factory closures.

 

 

Marriott has also breached and recovered from a key level, in this case $60, the 2016 low. The recovery that started into the end of last week could be a 3SR providing there is upside follow-through in the days ahead. Bullishly, the on-balance-volume indicator, held up during the sell-off. The MACD, like so many charts, fell to a record extreme.

The MAR P&F chart is against the S&P 500 Consumer Discretionary sector, exhibiting a rally up from the long-term support band.

 

 

Home Depot is well positioned to form a 3SR, across $160, across from the December 2018 low. Backing the recovery case is the on-balance-volume indicator maintaining its yearlong up channel. The MACD is also down to a record oversold condition.

The HD P&F relative ratio, against the S&P 500 Consumer Discretionary sector, has pulled back to trend. Although a Double Bottom has printed – possible Bear Trap.

 

 

UnitedHealth has retreated to a 2.5 year floor. A bounce over the coming days would result in a 3SR, shake-out across the shelf. Supporting that outcome, is a bullish volume divergence, and also illustrated a bullish relative divergence against the S&P 500. Risk can be limited to just under $200.

The UNH P&F chart also shows a 3SR developing. Needed now for signal confirmation, a Double Top or similar.

 

 

McDonald’s has been pulled down with rest of the market. Trading has breached support dating back to early 2018, with an attempt to reclaim that shelf now underway. The on-balance-volume indicator is down to three-year support, with a small bullish divergence.

The MCD P&F relative ratio, against the S&P 500, is in fairly good shape. A Low Pole printed on Friday, signaling an attempt to resume the outperformance trend of the past five years.