Point & Figure Analytics March 12, 2020

Monday through Wednesday saw around 1000 fresh P&F sell signals across the U.S. equity market, a ratio of 17 to 1, sells to buys. Downside volume was massive on Monday and again on Wednesday, a whopping 96%. Despite the horrific stats, the ultimate washout session has yet to occur.

A tell, regarding the bear market debate, was the lack of a bounce yesterday afternoon following news that the World Health Organization had categorized the coronavirus outbreak as a pandemic. Sell-the-rumor-buy-the-news had worked well for nimble investors over the past decade, but that tactic failed to deliver at all yesterday – another clue that the climate has taken a severe turn for the worse.


Indexes

Monday’s hard down session resulted in a sell signal on the S&P 500 – the first breakdown move since December 2018. The sell signal is preceded by a High Pole, into the record high. Also confirmed with Monday’s close is a 3SR signal and that forecasts a return to the 2018/19 range floor, with a brief breach likely. Therefore, a downside target around 2200/2300 is on the cards. However, the anticipated drop would be voided should the index recover to 3150 – a buy signal lifting trading back above the two-year range.

 

 

The NASDAQ Composite has produced sufficient consecutive bearish patterns to confirm an established downtrend. A High Pole off the record high in February, followed by three Double Bottoms in-a-row, the most recent being yesterday. The downtrend has carried trading back to the confines of the 2018/19 range. Typically, when range-bound activity resumes, trading works its way back down to the floor as those who bought the breakout above the range, unwind their wrong footed positions, a gradual process.

 


NYSE Breadth

Short-term breadth for the broad market, the NYSE % 10-week moving average (constituents trading above the average), yesterday dropped to its lowest level since 2011. Although the reading of 5.01% is deeply oversold, that alone is not a reason to buy. The indicator must base plus be considered alongside others, as part of a collective.

 

 

Medium-term breadth, the NYSE Bullish % (constituents on buy signals), has now fallen beneath 20%, entering deep oversold territory. However, as with the above indicator, that is not a reason to buy the market. Given the pace of deterioration, the Bullish % is probably going to fall further, breaching the December 2018 box low of 18%. Then it will need to base and that takes time. Crucially, the present reading reveals an ill market that really should be avoided until improvement is shown.

 


ETFs

The SPDR Industrial ETF printed its third Double Bottom in-a-row yesterday. Trend is heading fast towards the low from December 2018. A break of that low likely and then soon after it could attempt a recovery. Either way, trend is down, price and relative sell signals are in effect.

The XLI relative ratio is extending south, reflecting underperformance against the S&P 500. Eventual test of the twenty-year floor expected; a visit that is a few months away at least.

 

 

The VanEck Steel ETF has worked lower over the past two years, a trend that is now accelerating. High Pole into Bearish Trendline resistance at the end of 2019, with a sell signal printing on February 26th, providing a target to $9. Another downside level to watch is the 2016 box low at $15.50.

The SLX relative ratio is just one box away from equaling its 2016 box low. Breaching that level would equate to a new all-time low (fund listed in 2006).

 


Stocks

CAT [PRICE DOUBLE BOTTOM | INDEX RELATIVE DOUBLE BOTTOM] | Target = $92, Stop = $114

Caterpillar fell yesterday to psychological $100 – last visited in 2017. 2018 through 2019 trading is now a confirmed top formation. Next logical downside target to watch is support from 2017 across $92.

Relative ratio also exhibits a series of bearish patterns, over recent weeks, a pair of Double Bottoms. Next potential support shelf is the 2016 low, still some way to go.

 

 

UNP [PRICE DOUBLE BOTTOM | INDEX RELATIVE DOUBLE BOTTOM] | Target = $122, Stop = $148

In February Union Pacific confirmed a failed upside breakout above the 2019 ceiling, a P&F 3SR. Price has trended south since, heading fast towards support from 2018. Fresh Double Bottom imminent, $132 needed.

The relative ratio, against the S&P 500, failed last year at resistance from 2015, also a 3SR signal. Underperformance trend developing – three consecutive Double Bottoms already.

 

 

IP [PRICE DOUBLE BOTTOM | SECTOR RELATIVE BULL TRAP] | Target = $20, Stop = $40

International Paper fell to its lowest level since 2012 yesterday. Downtrend over the past two years has cut the price in half. Weakness set to continue – next major level of support waits across $20.

The relative ratio, against the S&P 500 Materials sector, reflects underperformance over the past several years. Fresh Double Bottom one box away.

 

 

MT [PRICE DOUBLE BOTTOM | INDEX RELATIVE DOUBLE BOTTOM] | Target = $7, Stop = $15.5

ArcelorMittal has trended south for the past two years. Magnetism across from the 2016 low should continue to pull the price down. Shorts best entered on any strength.

The relative ratio, against the NYSE Composite, targets the low from 2016.

 

 

CW [PRICE DOUBLE BOTTOM | INDEX RELATIVE DOUBLE BOTTOM] | Target = $88, Stop = $130

Curtiss-Wright confirmed a 3SR in late February, a failed breakout above the high from 2018. Downtrend established, heading towards the end of 2018 low at least.

The relative ratio, against the S&P 500, has just printed a two-year low. Long-term outperformance trend now under pressure.

 

 

AAPL [PRICE BEARISH TRIANGLE – developing INDEX RELATIVE DOUBLE TOP] | Target = $194, Stop = $305

Apple is holding up well in this volatile environment but that can only continue for so long – eventually it will succumb should the general market remain weak. A Bearish Triangle may be developing and that would confirm should the price reverse down and then fill the $260 box.

The relative ratio, versus the S&P 500, filled a new all-time box high yesterday. Outperformance should continue even if the price were to slip.