Point & Figure Analytics March 26, 2020

Wednesday saw even more impressive breadth figures that the good Tuesday numbers. Yesterday, the P&F buy sell signal ratio came in at 38 to 1. The big numbers we witnessed on the downside are now occurring to the upside, hinting at a possible V type recovery.

The present upside trajectory must continue. Occasional days of consolidation, light volume, even breadth, would be healthy (futures in the early hours of the morning suggest that may occur today for instance). A return of heightened volatility would be a worry but the VIX chart suggests it will now back off. The recent market sell-off propelled the VIX to the ceiling of its long-term range, marked out by the high from the 2008 financial crisis. The VIX is now unwinding – in a similar manner as it did back in late 2008/2009. The P&F chart uses a box size of 4 to illustrate the big picture.

 


Indexes

On Wednesday the Dow Industrials returned to the level of its December 2018 low. Overcoming this resistance level, holding above it, would be another clue that the market’s sell-off is over. Encouraging pattern action now apparent on the chart, a Low Pole, followed by a Double Top buy signal yesterday.

 

 

The S&P Midcap 400 Index also produced a buy signal with Wednesday’s session – recoveries underway at all levels of the market. Preceding the Double Top is a Bear Trap, occurring across a six-year support shelf, adding significance. Ideally a second buy signal is needed but given the level of the turn, the risk-to-reward ratio is favorable here, stop just under the low, target back to the record high.

 


Breadth

Medium-term breadth, the NYSE Bullish % (constituents on buy signals), showed important upside follow-through on Wednesday. When a bullish % jumps in this way from a deep oversold condition, yesterday +13%, mass short-covering is revealed. New bull markets typically begin with heavy short-covering.

 

 

The Small Caps NYSE Bullish % (constituents on buy signals), shows even greater strength, +9.4% on Wednesday, +20.3% on Tuesday. Here too, a powerful short-covering rally has commenced. The recent low of 2.82% (March 12th 2020) was beneath that of the lowest point during the 2008/09 Financial crisis, 5.63% (October 10th 2008), indicating just how oversold the market had become.

 


ETFs

The VanEck Junior Gold Miners ETF generated both price and relative buy signals this week. The price chart shows a failure through a four-year range floor, resulting in a 3SR, short-squeeze underway back up towards the range ceiling at least, $45 to $50.

The GDXJ P&F relative strength chart, against the NYSE Composite, has produced a pair of consecutive bullish patterns, Low Pole, then a Triple Top. Breakout above the base of the past four years expected.

 

 

The VanEck Gold Miners ETF is a few steps ahead of the GDXJ above. A 3SR confirmed with the Double Top breakout on Tuesday – test of the four-year range ceiling across $31 imminent. A breakout above the range could potentially spark a wave of buying interest, enabling a fuller retracement of the drop off the 2011 highs.

The GDX relative ratio, against the NASDAQ 100, remains in a strong position. Presently in an up column, printing a Quadruple Top breakout this week, a powerful signal that should trigger an outperformance surge.

 


Stocks

NEM [PRICE TRIPLE TOP | INDEX RELATIVE QUADRUPLE TOP] | Target = $72, Stop = $37

Newmont Mining has returned to the top end of its four-year range, well positioned for an upside extension to new recovery highs. Recent volatility would have created a favorable momentum condition. A reversal down, return to the range, could be used as a stop-loss.

The relative ratio, against the NASDAQ 100, recently broke higher via a Quadruple Top. Steady outperformance since May 2019.

 

 

GOLD [PRICE DOUBLE TOP | INDEX RELATIVE TRIPLE TOP] | Target = $29, Stop = $13.5

Barrick Gold heads towards the ceiling of its seven-year range. Two Double Tops in-a-row, defeating a bearish trendline. A long-term base would confirm at $24 and that should spark a strong upside extension.

Relative ratios against both the S&P 500 and NASDAQ 100 are on buy signals. Outperformance trend over the past two years – well positioned to continue.

 

 

AEM [PRICE DOUBLE TOP / 3SR | INDEX RELATIVE DOUBLE TOP] | Target = $67, Stop = $36

Agnico-Eagle is finally recovering following a poor start to the year. Recent failed breakdown of the 2018 lows, should propel the price back up to 2019 highs – note the end of 2018 failed breakdown of the 2016 low and that subsequent rally.

The relative ratio, against the NYSE Composite, has just pushed through a corrective down channel, thereby resuming the outperformance trend that started in 2018.

 

 

NKE [PRICE 3SR | INDEX RELATIVE BEAR TRAP] | Target = $102, Stop = $60

Nike breached its December 2018 low, shaking out longs, drawing in shorts, only to reverse up again, a classic 3SR. Move should work its way back up to the record high from January.

The relative ratio, against the S&P 500, already has a Bear Trap in place, one box away a Double Top, a fresh record box high is three boxes away.

 

 

UNH [PRICE 3SR | INDEX RELATIVE TRIPLE TOP] | Target = $355, Stop = $186

UnitedHealth confirmed a 3SR yesterday via a Double Top breakout. The long-term uptrend is likely now reasserting as short-covering propels the price higher.

The relative ratio, against the Dow Industrials, reversed up yesterday, resuming the outperformance trend that started in October.

 

 

JPM [PRICE 3SR – developing | SECTOR RELATIVE QUADRUPLE TOP] | Target = $112, Stop = $78

JPMorgan Chase is reclaiming broken December 2018 support. Another buy signal around the $90/$95 level would confirm a 3SR and doing so should trigger an upside reassertion back to the record high.

The relative ratio, against the S&P 500 Financials, remains strong, on the verge of fresh record highs.